Reason Magazine - Topics > India

Starving Indians Not Impressed by Global Warming Plan

kmw@reason.com (Katherine Mangu-Ward) — Wed, 09 Jul 2008 18:55:00 EDT

How do you say "screw you" in Hindi?

The plan's authors, the Prime Minister's Council on Climate Change, said India would rather save its people from poverty than global warming, and would not cut growth to cut gases.
"It is obvious that India needs to substantially increase its per capita energy consumption to provide a minimally acceptable level of wellbeing to its people."
The plan's only real promise was in fact a threat: "India is determined that its per capita greenhouse gas emissions will at no point exceed that of developed countries."

More global warming fun here.

Hard Time Killing Fraud

rbalko@reason.com (Radley Balko) — Mon, 24 Mar 2008 10:40:00 EDT

When a prominent Indian politician said her political opponents had put a black magic spell on her, one of India's largest Hindu TV stations invited Indian rationalist Sanal Edamaruku to debate black magic shaman Pandit Surinder Sharma on science and religion. That's where it got interesting:

During the discussion, the tantrik showed a small human shape of wheat flour dough, laid a thread around it like a noose and tightened it. He claimed that he was able to kill any person he wanted within three minutes by using black magic. Sanal challenged him to try and kill him.
The tantrik tried. He chanted his mantras (magic words): “Om lingalingalinalinga, kilikili….” But his efforts did not show any impact on Sanal – not after three minutes, and not after five. The time was extended and extended again. The original discussion program should have ended here, but the “breaking news” of the ongoing great tantra challenge was overrunning all program schedules.
[...]
He started sprinkling water on Sanal and brandishing a knife in front of him. Sometimes he moved the blade all over his body. Sanal did not flinch. Then he touched Sanal’s head with his hand, rubbing and rumpling up his hair, pressing his forehead, laying his hand over his eyes, pressing his fingers against his temples. When he pressed harder and harder, Sanal reminded him that he was supposed to use black magic only, not forceful attacks to bring him down. The tantrik took a new run: water, knife, fingers, mantras. But Sanal kept looking very healthy and even amused.
After nearly two hours, the anchor declared the tantrik’s failure. The tantrik, unwilling to admit defeat, tried the excuse that a very strong god whom Sanal might be worshipping obviously protected him. “No, I am an atheist,” said Sanal Edamaruku. Finally, the disgraced tantrik tried to save his face by claiming that there was a never-failing special black magic for ultimate destruction, which could, however, only been done at night. Bad luck again, he did not get away with this, but was challenged to prove his claim this very night in another “breaking news” live program.

The never-failing special black magic for ultimate destruction didn't work, either. Sharma couldn't even muster a case of the sniffles.

Guns for Vasectomies

gillespie@reason.com (Nick Gillespie) — Tue, 18 Mar 2008 16:07:00 EDT

Because this modern world just isn't fucking weird enough:

Officials in central Madhya Pradesh state's Shivpuri district decided to adopt the policy—already tried out by some neighbouring states—to increase the low vascectomy rate.
"I came to know that it had to do with their perceived notion of manliness," said Manish Shrivastav, administrative chief of Shivpuri district, part of the Indian Chambal region, which is famed for its lawlessness and bandits.
"I then decided to match it with a bigger symbol of manliness—a gun licence," he said. "And the ploy worked."...
"I never bothered to apply for a licence before because I knew it was not so easy to get," said Shivpuri resident K.K. Saxena, 55, who recently underwent the procedure. "But when I heard about this then I decided to apply."
Saxena was provided with a medical slip confirming his sterilisation to attach to his gun application.
About 10,000 to 15,000 people apply each year for gun licences in Shivpuri, but only about 500 permits are granted annually.

More here.

Here's hoping the Supreme Court, currently hearing its major gun-control case since 1939, doesn't read about this.

Bullish on Cows

jwalker@reason.com (Jesse Walker) — Fri, 11 Jan 2008 16:48:00 EST

Writing in The Wilson Quarterly, Karol Boudreaux and Tyler Cowen take a nuanced look at what microcredit can and can't do to help poor people around the world. I won't try to summarize all their points, but I will quote my favorite part of the piece:

Westerners typically save in the form of money or money-denominated assets such as stocks and bonds. But in poor communities, money is often an ineffective medium for savings; if you want to know how much net saving is going on, don't look at money. Banks may be a daylong bus ride away or may be plagued, as in Ghana, by fraud. A cash hoard kept at home can be lost, stolen, taken by the taxman, damaged by floods, or even eaten by rats. It creates other kinds of problems as well. Needy friends and relatives knock on the door and ask for aid. In small communities it is often very hard, even impossible, to say no, especially if you have the cash on hand....

Under these kinds of conditions, a cow (or a goat or pig) is a much better medium for saving. It is sturdier than paper money. Friends and relatives can't ask for small pieces of it. If you own a cow, it yields milk, it can plow the fields, it produces dung that can be used as fuel or fertilizer, and in a pinch it can be slaughtered and turned into saleable meat or simply eaten. With a small loan, people in rural areas can buy that cow and use cash that might otherwise be diverted to less useful purposes to pay back the microcredit institution.

Subpoenas of the Gods

jwalker@reason.com (Jesse Walker) — Tue, 11 Dec 2007 11:16:00 EST

A Telegraph correspondent in India describes a dispute "over ownership of a 1.4-acre plot in Dhanbad which adjoins a temple dedicated to Ram and another one dedicated to the monkey god Hanuman." The priest claims to own the land, while the congregants say it belongs to the gods themselves. To resolve the debate, a judge has

placed notices in newspapers...asking gods Ram and Hanuman to appear in his court next week to present their arguments.

"You failed to appear in court despite notices sent by a messenger and later through registered post. You are hereby directed to appear before the court personally," Judge Singh's notice stated.

The newspaper notices were published, in keeping with accepted Indian legal practice, after two summons dispatched to the plaintiff deities were returned because their addresses were "incomplete".

In a parallel development,

Tweety may get a chance to take the witness stand and sing like a canary. An Italian court ordered the animated bird, along with Mickey Mouse, Donald Duck and his girlfriend Daisy, to testify in a counterfeiting case.

In what lawyers believe was a clerical error...the court summons cites Titti, Paperino, Paperina, Topolino -- the Italian names for the characters -- as damaged parties in the criminal trial of a Chinese man accused of counterfeiting products of Disney and Warner Bros.

Indira and the Islamists

info@reason.com (Shikha Dalmia) — Wed, 14 Nov 2007 15:10:00 EST

The Bush administration has so far taken only perfunctory steps to prod Pakistani President Pervez Musharraf to lift "emergency rule," reinstate the constitution and hold elections. Doing anything more, the United States seems to fear, might produce an Islamist victory at the polls—and undermine a key ally in its war on terror. In effect, the old foreign policy bogeyman of the "fear of the alternative" is back in the White House.

But at least with respect to Pakistan, this fear ought to be banished. If anything, the longer Mr. Musharraf is allowed to suspend democracy, the more politically powerful Pakistan's religious extremists are likely to become. Those who doubt this thesis should peer across Pakistan's southern border and examine what happened during India's two-year flirtation with emergency rule in 1975.

Like Mr. Musharraf, India's then Prime Minister Indira Gandhi declared emergency after a state high court invalidated the elections that had brought her to power, on grounds of corruption and fraud. But instead of stepping down, she gave herself extraordinary powers and launched a massive crackdown on every democratic institution that India had painstakingly built since its independence from the British in 1947. She threw leaders of opposition parties behind bars and clamped down on the press, threatening to cut off the power supply to newspapers that refused to submit to her censorship. She also banned political activity by grassroots organizations.

Shutting down these institutions had a perverse side effect from which India's secular democracy has yet to fully recover: It left the field of resistance open to Hindu extremist groups such as the Rashtriya Swayamsevak Sangh (RSS) and its then political front Jan Sangh, allowing them to regain the political legitimacy they had lost after one of their erstwhile recruits assassinated Mahatma Gandhi. The RSS was banned shortly after the assassination, but once the ban was lifted, it decentralized its organization further, making it harder for authorities to keep track of all its activities. The RSS maintained a public face of a charitable social organization, but beneath that facade lay a more sinister side that engaged in communal sectarian incitement and other subversive activities.

The RSS's quasi-underground character proved to be a vital asset after Gandhi choked off all regular channels for political organization. Unlike the other parties, Jan Sangh was quickly able to mobilize the nationwide network of RSS's "shakhas," or highly disciplined cadres, and take over the mantle of resistance. It temporarily suspended its ideology of "Hindutva," or Hindu nationalism, to make common cause with what it dubbed the "second struggle for independence." It played an important role in producing and disseminating underground literature chronicling Gandhi's excesses, publishing speeches by her opponents and reaching out to families of arrested dissidents.

The upshot was that once the emergency was lifted and elections called, Jan Sangh declared itself the savior of Indian democracy—a boast that its successors like the Bharatiya Janata Party still make—and won a prominent place in the coalition of secular parties that ultimately defeated Gandhi. This alliance collapsed in less than two years, thanks in no small part to Jan Sangh's sectarian demands. Nevertheless, as New York University Professor Arvind Rajagopal has noted, this brief stint in power proved an invaluable launching pad for the group's virulent ideology and did lasting damage to the country's commitment to secularism.

Indeed, although Gandhi, like her father, Jawaharlal Nehru, was an ardent secularist, after she returned to power she assiduously tried to build her Hindu bona fides, even accepting an invitation by a Hindu fundamentalist group to inaugurate the Ganga Jal Yatra, an annual event under which Hindus gather in a show of unity and collectively march to the mountains to get water from the holy Ganges river. Gandhi's gesture was significant because it legitimized the use of Hindu symbolism for political mobilization, something that subsequently produced immense tensions and ugly confrontations among Hindus and Muslims.

A similar political mainstreaming of radical Islamist groups might occur in Pakistan if Mr. Musharraf is allowed to prolong his power grab. In fact, the situation could be worse, given that, unlike India, Pakistan has never been a secular country and Islamists have always exerted considerable behind-the-scenes influence on government. They have infiltrated the Pakistani intelligence services and are well represented in the ranks of the civil bureaucracy. And there has always been close cooperation between Pakistan's generals and mullahs because of their common interest in cultivating Pakistan's Islamic identity and playing up the threat that Hindu India poses to it. The one government institution where Islamists have only a minority presence is the Pakistani Parliament.

But that might change if Mr. Musharraf continues to postpone elections and crush political opponents. Under such circumstances, Jammat-e-Islami (JI), Pakistan's oldest religious party with ties to the Taliban -- and an organization that harbors a long-standing desire to impose Shariah, or Islamic law, on the country -- and its sister organizations might well become useful to secular parties such as former Prime Minister Benazir Bhutto's Pakistan People's Party. JI and its cohorts command even bigger powers of mobilization than Jan Sangh did during India's emergency. They run madrassas, or religious schools, publish newspapers and have sizeable cadres that can be quickly deployed for street protests. These resources might prove vitally important in resisting Mr. Musharraf.

"Instead of the secular and religious parties working against each other, they will start working together," fears Prof. Hasan-Askari Rizvi of Punjab University in Lahore. Indeed, the Associated Press has already reported that Ms. Bhutto is inviting the Islamist parties, many of whose members too have been thrown in jail, to "join hands" with her. All of this will allow the Islamists to mask their real agenda and piggyback on a popular cause to win more representation in parliament when elections are held. Even if secularists like Ms. Bhutto prevail in these elections eventually, it will be much harder for them to resist Islamist demands if they are beholden to them for beating back the emergency. In effect, the Islamist reach will not only gain in depth—but legitimacy as well.

If Mr. Musharraf were prodded to call off the emergency and honor his commitment to hold genuinely free and transparent elections in early January, would that lead to an Islamist victory, or at least significant gains, as the Bush administration fears? Not at all.

Islamist parties had their best showing in the 2002 general elections, when they secured 11.1% of the vote and 53 out of 272 parliamentary seats—a major gain over the pathetic three seats they won a decade before. But this gain was less serious than it seems. Most of the additional seats came not from Pakistan proper, but a few border provinces in the West that were experiencing a resurgence of anti-Americanism given their deep cross-border ties with the Taliban in Afghanistan. More crucially, however, Mr. Musharraf banned Ms. Bhutto and leaders of other secular parties from running, making it hard for these parties to secure a decent voter turnout. If free and fair elections were to be held today, Prof. Rizvi estimates secular parties would win handily, with the Islamists commanding no more than 5% of the national vote.

Islamist victory at the polls is not a real threat in Pakistan right now. The Bush administration should not allow that fear to deter it from applying maximum pressure on Mr. Musharraf to hold elections posthaste. The U.S. can, for instance, threaten to cut off Pakistan's supply of F-16 fighter jets and other nonterrorism-related aid.

India's example shows that even one vacation from democracy can be a huge setback for secularism. Yet another prolonged suspension of democracy will leave Pakistan few resources to beat back its Islamists. This is one instance where the Bush administration's avowed commitment to democracy is not just the more principled—but also the more practical—way of countering the threat of Islamic extremists.

Shikha Dalmia is a senior policy analyst with the Reason Foundation.

Indira and the Islamists

gillespie@reason.com (Nick Gillespie) — Tue, 13 Nov 2007 07:57:00 EST

Over at the Wall Street Journal, Reason Foundation analyst Shikha Dalmia looks at the current problems in Pakistan through the India's flirtation with emergency rule in 1975, which turned out to be a real setback for secular rule.

The upshot was that once the emergency was lifted and elections called, Jan Sangh declared itself the savior of Indian democracy -- a boast that its successors like the Bharatiya Janata Party still make -- and won a prominent place in the coalition of secular parties that ultimately defeated Gandhi. This alliance collapsed in less than two years, thanks in no small part to Jan Sangh's sectarian demands. Nevertheless, as New York University Professor Arvind Rajagopal has noted, this brief stint in power proved an invaluable launching pad for the group's virulent ideology and did lasting damage to the country's commitment to secularism.
Indeed, although Gandhi, like her father, Jawaharlal Nehru, was an ardent secularist, after she returned to power she assiduously tried to build her Hindu bona fides, even accepting an invitation by a Hindu fundamentalist group to inaugurate the Ganga Jal Yatra, an annual event under which Hindus gather in a show of unity and collectively march to the mountains to get water from the holy Ganges river. Gandhi's gesture was significant because it legitimized the use of Hindu symbolism for political mobilization, something that subsequently produced immense tensions and ugly confrontations among Hindus and Muslims....
India's example shows that even one vacation from democracy can be a huge setback for secularism. Yet another prolonged suspension of democracy will leave Pakistan few resources to beat back its Islamists. This is one instance where the Bush administration's avowed commitment to democracy is not just the more principled -- but also the more practical -- way of countering the threat of Islamic extremists.

Whole thing here.

Lessons from Abroad

info@reason.com (Shikha Dalmia) — Wed, 31 Oct 2007 12:57:00 EDT

Read this column in the Chicago Tribune.

If It Moves, Register It!

jsamuel@reason.com (Juliet Samuel) — Tue, 17 Jul 2007 08:14:00 EDT

There is growing concern in India over increasingly high abortion rates for female fetuses. Supposedly, having a boy assures parents of an income source in their dotage and spares them the financial burden of a dowry. The result: Many families who can afford it get illegal sex tests done and then have a fetus of the “wrong” sex quietly aborted. Abortions are only allowed in “special circumstances” (e.g. rape, incest etc.) in India, but that doesn’t stop one in every 25 females being aborted, according to one study.

The government has come up with a foolproof solution: Have every woman register her pregnancy with the government so they’ll know about any illegal abortions. Unfortunately, it’s yet to explain how it will enforce the plan, nor what incentives women could possibly have for registering (via Feministing):

Some activists said the government's plan to create a pregnancy register in a country of 1.1 billion people--where more than 50 percent of women deliver children at home without medical assistance--was unrealistic.
"We cannot give elementary health services in a satisfactory way to most of our citizens, and to talk about registering pregnancies is ridiculous," said Alok Mukhopadhyay, head of the Voluntary Health Association of India.

What is it with the recent fad in baby-registering?

Kerry Howley blogged the deficit in German baby production last year.

I Believe That Roving Gangs of Children Are Our Future

jwalker@reason.com (Jesse Walker) — Thu, 17 May 2007 12:23:00 EDT

"India and China are so fundamentally different in so many ways," James Fallows writes, "that it is amazing that Americans often talk about them as a twinned pair." Among the essential differences: the children.

The instant my wife and I walked around [Mumbai] we noticed how different the role of children was here from any place we had seen in urban China.

In Shanghai -- or Beijing, or Shenyang, or Hangzhou -- children not in school are seen in the presence of one and usually more adult supervisors: parents, grandparents, aunts or uncles, people from the neighborhood. But in this one afternoon in Mumbai we came across many scenes of what can only be called roving bands of kids. They were playing cricket in dirt lots. They were throwing stones. They were playing tag. They were running around without watchful adults immediately in sight.

I know the policy background here (one-child mandate in China), and the statistical manifestations of the difference. China's median age is in the mid-30s; India's, the mid-20s. India's population growth rate is about three times faster than China's. China has an aging-population problem; India has a plain old population problem, etc. But those don't prepare you for the way a country full of children looks...

Via Virginia Postrel, who adds: "Which approach will produce a more creative, productive generation: more attention or more autonomy?"

Bonus link: Colin Ward's The Child in the City.

Policing Ourselves

jwalker@reason.com (Jesse Walker) — Tue, 27 Mar 2007 15:10:00 EDT

An intriguing arbitration system built around neighborhood councils -- called panchayats, after the country's village governments -- is emerging in India's squatter districts, with the authorities' support. The Chicago Tribune reports:

At the Kaylan Wadi Police Beat 3 in Dharavi, sari-draped local women with yellow police identification cards hanging from their necks operate what is effectively a police station in a one-room community organizing hall that also houses a micro-credit bank. Beneath a huge aerial photo of the slum, the women - backed by a few male colleagues and a single police officer - take complaints, haul in offenders and negotiate resolutions to domestic violence and harassment cases, minor thefts, property disputes and other petty crimes, usually within days.

In a little over two years, their corner of the massive slum has seen crime drop by an estimated 30 percent to 50 percent, [former police commisioner A.N.] Roy said. Violence against women, in particular, has been slashed and police, once stymied in efforts to investigate slum murders and rapes, now have plenty of knowledgeable deputies tracking down clues....

The panchayats, each made up of seven local women and three men, have no formal power to call in, sentence or discipline offenders. What they offer instead, said Arputham Jockin, president of the National Slum Dwellers Federation, is "instant justice" - an alternative to the uncertainties of pushing a case through the country's notoriously slow and overburdened court system.

The Tribune says that there are now "230 panchayats scattered through the slums of Mumbai and nearby Pune, serving a population of between 3.5 million and 4 million slum dwellers." Meanwhile, "Panchayats based on the Mumbai model also have popped up in Sri Lanka and the Philippines, and officials from countries ranging from Thailand to South Africa have visited to take a look at the program, said Roy, who this month was appointed a director general of police."

I can't guarantee that the system really is as decentralized and responsive as it's described here. But it sounds terrific. And for what it's worth, the other reports I've found so far -- from The Hindu, the BBC, and the police themselves -- are glowing.

"I will show the world that I can be its master! I will perfect my own race of people. A race of Saddam Husseins which will conquer the world! Ha ha ha ha ha ha!"

jwalker@reason.com (Jesse Walker) — Wed, 10 Jan 2007 10:17:00 EST

Welcome to Lakhanow, a heavily Sunni village in northern India where a man has just renamed his three-year-old son Saddam Hussein. According to the BBC,

the child will not be the only Saddam Hussein in the neighbourhood. There are more than 20 other Saddam Husseins in Lakhanow alone.

Local people say there are more than 100 Saddam Husseins in 27 adjoining villages dominated by mostly Sunni Muslims....

"This is our way to pay tribute to our leader. We want to carry on his legacy here at least in our village," said Ejaj Alam.

"God willing one day our village will be full of Saddam Husseins."

"George Bush can hang one Saddam Hussein," another villager declared, "but we will create an army of Saddam Husseins."

Invasion of the Hungry Elephants

jwalker@reason.com (Jesse Walker) — Mon, 08 Jan 2007 09:31:00 EST

Continuing our occasional series on human-elephant relations, here's a report from the Karimganj District in northeastern India:

As the aroma of sali crops fills the air, hundreds of elephants materialise in the Barak Valley region from the neighbouring forest and even Bangladesh, to feast on the ripe grains.

After a hearty meal, the "mobs" usually target human dwellings — leaving behind a trail of destruction....In the past 10 years at least eight villagers were trampled to death by the elephants.

Karimganj's Tancredos have called for a fence along the Bangladeshi border, to stop the "infiltration" of foreign elephants. Meanwhile,

Volunteer squads will be formed to patrol the elephant corridors and specially-trained elephants known as kunkis will be deployed to drive away the wild tuskers.

But the most domestic tactic seems to be applying "chilli bombs" -- pepper mixed with engine oil -- on the fences keep herds on the either sides of the border from straying into foreign territory.

We've reported the use of chili peppers as a defense against wild elephants before. Mixing it with engine oil is new to me, though. Doesn't sound very appetizing, but if you want a really spicy experience...

For more on the kunkis, go here.

For a detailed account of the elephants' social structure, go here.

Behold, I Am a Dry Tree

jwalker@reason.com (Jesse Walker) — Mon, 13 Nov 2006 09:38:00 EST

In India, the taxman has a new weapon:

Tax authorities in one Indian state are attempting to persuade debtors to paying their bills -- by serenading them with a delegation of singing eunuchs....

The eunuchs collected about 400,000 rupees on their first day of work, authorities said, sharing 16,000 rupees (£188) amongst themselves.

The BBC attributes the eunuchs' success to the fact that they "are feared and reviled in many parts of India, where some believe they have supernatural powers." I suspect it has more to do with good old-fashioned shame, and perhaps the subtle reminder that the government could always take more.

The Rise and Fall of Indian Socialism

sstaley@reason.org (Sam Staley) — Tue, 06 Jun 2006 00:00:00 EDT

India became the poster child for post–World War II socialism in the Third World. Steel, mining, machine tools, water, telecommunications, insurance, and electrical plants, among other industries, were effectively nationalized in the mid-1950s as the Indian government seized the commanding heights of the economy.

Other industries were subjected to such onerous regulation that innovation came to a near standstill. The Industries Act of 1951 required all businesses to get a license from the government before they could launch, expand, or change their products. One of India's leading indigenous firms made 119 proposals to the government to start new businesses or expand existing ones, only to find them rejected by the bureaucracy.

The government imposed import tariffs to discourage international trade, and domestic businesses were prevented from opening foreign offices in a doomed attempt to build up domestic industries. Foreign investment was subject to stifling restrictions.

But the planners failed. Manufacturing never took off, and the economy meandered; India lagged behind all its trade-embracing contemporaries. Between 1950 and 1973, Japan's economy grew 10 times faster than India's. South Korea's economy grew five times faster. India's economy crawled along at 2 percent per year between 1973 and 1987, while China's growth lept to 8 percent and began matching rates for Hong Kong, Taiwan, and other Asian tigers. Even as that reality became clear as early as the late 1960s and early 1970s, India's policy makers refused to give up on economic planning. Experts and elected officials settled for what they called the "Hindu Rate of Growth," which, according to official figures, was sluggish at about 3 to 4 percent per year. That would be respectable for a developed country like the United States or Germany, since they start from a higher economic base. But for a country like India, it's abysmal.

Attitudes finally began to change in the 1980s, as India's persistent budget deficits forced austerity measures in the middle of the decade. A foreign exchange crisis in 1991 precipitated major shifts in public policy thinking. The government brought spending in line with revenues and moved away from fixed exchange rates, allowing the Indian currency to reflect world prices. (Fixing exchange rates at a government-determined price tended to overvalue the rupee on world markets, discouraging foreign investment.) The government began to open the door to foreign investment while Indian companies were allowed to borrow in foreign capital markets and invest abroad. Inflation was brought under control.

The new policies fostered a booming information technology industry, which grew to billion-dollar status in the mid-1990s and exceeded $6 billion in revenues by 2001. The technology sector didn't suffer from as many burdensome regulations as, say, steel and airlines. Nor did its success hinge on traditional utilities and basic infrastructure, depending more on new technology such as satellites. A 2004 World Bank report notes that "Services, the least regulated sector in the economy continue to be the strongest performer, while manufacturing, the most regulated sector, is the weakest."

At first, Indians were simply subcontractors to more sophisticated multinational companies. Then Indian companies began to generate new technologies on their own as they tapped into the global marketplace. The software used to power Palm Pilots, for example, was developed by an Indian firm, not outsourced to technicians or programmers. Today 1,600 tech companies, including the billion-dollar multinationals Infosys and Wipro, export products and services from India's high-tech capital, Bangalore. U.S. companies with major Indian investments include Google, Yahoo, Microsoft, and Oracle. While I.T. exports led the industry's early growth, future growth is expected to be based on the expansion of the domestic economy.

With a billion people, India is bound to become a major consumer powerhouse. It may even outcompete China. "Culturally, India is much more attuned to free market ideas," says Barun Mitra, managing trustee of the New Delhi–based Liberty Institute. "India's social and institutional fabric is much more resilient than China's. The nationalized component of the Indian economy is relatively small. India's share of the workforce in any kind of public sector is barely 6 percent of the total workforce of 420 million."

Furthermore, India's regulatory apparatus was crafted from a kinder, gentler form of socialism. For one thing, more than 90 percent of its workforce is in the informal sector, largely untouched by the regulations perpetuated by the federal government in Delhi and the state and regional governments. Furthermore, India is a liberal democracy, bounded by a constitution and a broad-based cultural tolerance for different lifestyles and points of view. Those same factors—grassroots respect for trade, constitutional governance, and cultural tolerance of diversity—have contributed to the rise of another industry symbolic of a progressive, dynamic economy: film and entertainment. "Bollywood's" movie output rivals that of Hollywood and Hong Kong.

That's not to say there's no intolerance: A bloody war followed India's independence and partition in 1947, and serious tensions have persisted along religious, ethnic, class, and caste lines. But despite a population that is overwhelmingly Hindu, India's current president is a Muslim, and its current prime minister is a Sikh. Thirty thousand people died in the state of Punjab between 1980 and 1995 primarily because of conflict between Hindus and Sikhs. Yet Punjab is now peaceful, and is one of India's richest states.

"It is worth pointing out that there are 150 million Indians who profess the Muslim faith," Mitra observes. "Yet there is not one Indian Muslim who has been found to be involved with any of the international jihadi or terrorist groups. And I believe this is because of the sense of political participation that the Indian democratic process allows."

The key to further progress will be leveraging the country's comparative economic advantage in information technology and services. "India has many of the key ingredients for making this transition," notes a 2005 report from the World Bank Finance and Private Sector Development Unit. "It has a critical mass of skilled, English-speaking knowledge workers, especially in the sciences. It has a well-functioning democracy. Its domestic market is one of the world's largest. It has a large and impressive Diaspora, creating valuable knowledge linkages and networks."

As robust as India's growth is, it probably could do much better. It will take a continued commitment to open trade to achieve higher growth rates, and it's still unknown whether India has the political commitment to stay the course.

Where Did India's Skilled Labor Come From?

info@reason.com (Shikha Dalmia) — Tue, 06 Jun 2006 00:00:00 EDT

One obvious prerequisite for the Bangalore boom was India's high-tech labor force. Most commentators credit India's technical prowess to socialist rulers who, in a bid to make the country an industrial power, "overinvested" in engineering and other professional colleges. Even as secondary school education languished, they built a slew of super-elite engineering colleges called IITs (Indian Institutes of Technology) and a network of regional engineering colleges to train workers for state-owned heavy industry companies.

But the government's "overinvestment" in education was not nearly enough to meet the massive demand among India's middle classes for professional degrees, their ticket to secure jobs even before the information technology boom. The biggest unmet demand, notes Economic Times correspondent Chidanand Rajghatta, was among upper-caste Hindus who were frozen out of most government colleges by admissions quotas that reserved up to 70 percent of their seats for lower castes and religious minorities.

In the 1960s and '70s, religious and philanthropic organizations picked up the slack by founding private engineering colleges of their own, often of substandard quality. But as the I.T. industry grew in the '90s, so did the number of private engineering colleges and polytechnics. Today, four out of five engineering students attend private colleges, even though those institutions charge five to 10 times more in tuition than government colleges. The private schools also demand an upfront entry or "capitation" fee equivalent to about $3,000 to $4,000—a small fortune for middle-class families. The quality of these schools still varies a great deal, notes Vijay Menon of Progeon, the Bangalore-based outsourcing arm of the I.T. company Infosys. "But many of them have built a brand name for themselves by the stellar performance of their graduates on the American GRE," he adds.

This market has thrived even though new colleges face high legal barriers to entry. For instance, private colleges are not allowed to confer degrees unless they can persuade the University Grants Commission, a government body, to grant them an affiliation with a government university. But government universities, without whose acquiescence the commission cannot act, have little incentive to let new, private entrants loosen their stranglehold.

Despite all these hurdles, Karnataka (along with a couple of other south Indian states) has always had a robust private sector in the higher education market that has been a trailblazer for the rest of the country. Now it has nearly twice as many private professional colleges as government ones.

The government's role in providing higher education has shrunk over the years because it simply did not have the money to keep subsidizing it. But this is a blessing in disguise, argues C.K. Prahlad, a professor of management at the University of Michigan. The I.T. boom has strained Bangalore's capacity to supply workers. So fierce is the competition for qualified employees that the average I.T. company in Bangalore loses about 70 percent of its trained work force every year to rival firms. The strong presence of private-sector technical schools gives I.T. companies a far better chance of addressing the worker shortage than of addressing the shortage of roads, power supply, and other public-sector infrastructure.

Furthermore, unlike government colleges, the private schools have a vested interest in delivering graduates with skills suited for the industry. "Otherwise," Prahlad notes, "they can't justify their hefty capitation fees."

General education in southern India has become much more job-relevant because private, autonomous colleges play a bigger role there than they do in the north, says Progeon's Menon. For instance, his wife, a professor of English literature, teaches at a college that offers bachelor's degrees not in English but in communications and English, a field with more direct relevance to the growing public affairs departments of large companies. Today the I.T. industry is working ever more closely with colleges to develop new programs, something that will ensure jobs for their graduates and reduce the training expenditures of companies.

What Detroit Can Learn From Bangalore

info@reason.com (Shikha Dalmia) — Tue, 06 Jun 2006 00:00:00 EDT

K.G. Nanjappa, the mustachioed, 35ish driver I hired for my five-day stay in Bangalore, was not given to many opinions. But there was one thing this soft-spoken, diminutive man was certain of: “It is bery good thing I.T. companies here, madam.”

Yes, he admitted, the influx of information technology companies into this South Indian city of nearly 6 million people had made his job more stressful. The sudden burst in traffic had cratered the streets faster than municipal authorities could say “pothole.” (Bangalore residents je that while elsewhere people drive on the left of the road, they drive on what’s left of the road.) Commute times had quadrupled, and road rage was on the rise.

But just a few years after Nanjappa and his family had moved from a nearby village to Bangalore, his base salary had doubled from $60 to $120 a month. In addition, he routinely took in as much as $60 a month in tips, putting his income in a range he had scarcely imagined possible.

It’s not that he doesn’t miss his old village life, he explained. But by carefully managing his finances, he can send his daughter to a private school while planning for a second child. All of this, he maintains, is well worth trading the simple pleasures of his bucolic past life for the hassles of his new, grungy city existence.

Evidently, Nanjappa is not the only one who feels this way: Every week, nearly 3,700 new people from all over India—from high-tech professionals to semi-skilled service staff—vote with their feet by moving to Bangalore, the I.T. and outsourcing capital of the East. A fraction of them, as we’ll see, were driven from their homes by a land-grabbing government, but the vast majority are simply pursuing the city’s many opportunities. Even skilled expatriates from Australia, California, and Europe are returning, undeterred by Bangalore’s ubiquitous poverty, squalor, and chaos after years of life in plush, clean, and orderly surroundings. The city’s population has ballooned from just 1 million residents in 1960, giving Bangalore a 5.7 percent annual rate of growth that has made it one of the fastest-growing cities not just in India but in all of Southeast Asia. There are signs this influx is beginning to slow, due to the city’s dismal infrastructure. For now, however, it has injected new energy into a town that was once so dull that Winston Churchill compared it to a prison.

Giant multinationals such as Microsoft, Intel, and Dell are cramming the city with glittering new glass-and-steel buildings. Every inch of real estate in the city proper has been spoken for, pushing Indian computer behemoths such as Infosys and Wipro to erect their sprawling, lush, and unabashedly opulent campuses on the outskirts. Hotels ranging from the sumptuously luxurious five-star Leela Palace to the low-budget Woodlands run at full capacity. Trendy little boutiques and high-rise malls selling everything from ethnic wares to Western goods are everywhere. New restaurants featuring Italian and Thai food are challenging the culinary domination of traditional Indian restaurants.

When I return home to the Detroit area, where I have lived for the last 18 years, the contrast couldn’t be starker.

To be sure, Detroit has many of the trappings of wealth that come from sitting in the lap of the richest country in the world: an excellent freeway system, a sparkling riverfront, good sanitation. Bangalore, in turn, has many of the afflictions of a poor country: pollution, open sewers, slums. But there is a palpable buzz in Bangalore’s air that comes when industrious people are engaged in creating wealth. That’s missing in Detroit, where a big chunk of the population lives off welfare.

While Bangalore grows, Detroit continues to lead the United States in population decline. Every week, on average, 370 residents leave its crime-ridden, economically depressed neighborhoods for a better life in the suburbs or elsewhere in the country. The city’s population, close to 2 million in the late 1950s, has shrunk to less than 900,000. Formerly the fifth largest city in the country—bigger even than Chicago—Detroit is now smaller than San Jose.

This is not to deny that some economic movement has occurred in Detroit in the last decade: The city in February pulled off the Super Bowl at the new state-of-art Ford Field Stadium without a hitch—no mean feat given that, until a few years ago, it could not even plow its streets after an evening snowstorm for kids to walk to school in the morning. General Motors has sunk $500 million to renovate the Renaissance Center, a complex of glass office towers that sat nearly vacant on the Detroit River for about two decades. In part due to generous tax subsidies, Detroit got its first significant new office building in a decade with the opening of the Compuware Center. Three new casinos have opened, including one in the thriving Greek Town area—one of Detroit’s few bright spots, where pedestrians actually can walk at night without fearing for their lives. And in a burst of government largesse, some old rococo gems such as the Fox Theater and Detroit Opera House have been restored, along with Campus Martius, once the busiest public square in America.

But these grand projects haven’t jump-started Detroit’s economic engine. While stores like Esprit, Nike, and Adidas open showrooms by the dozen in Bangalore, not a single major national retailer has expressed interest in Detroit since the closing of Hudson’s department store in 1982. The opening of a Ben & Jerry’s ice cream parlor in the Compuware building last year was cause for celebration.

In fact, Detroit’s landscape has barely changed since I first peered out the window of a friend’s upper-floor apartment at Wayne State University in 1987, into a hauntingly beautiful abandoned building across the street. Its rooms were stripped bare, every piece of cabinetry likely sold for firewood by local junkies. And its brick facade was marred by row after row of shattered windows—like a lovely face ravaged by pockmarks.

Entire blocks of such buildings have been razed in recent years. But with few new investors stepping forward to redevelop the sites, many have reverted to urban prairies. The 10,000 or so abandoned buildings that have escaped the bulldozers serve as both a reminder of the city’s lost glory and a taunt to its hopes of a renaissance.

Bangalore, a Third World city beginning with nothing, has experienced meteoric economic growth, while Detroit, once a formidable industrial powerhouse, can’t crawl out of its economic rut. If Detroit wants to boom again, it could learn some lessons from Bangalore. The factors that made India the world’s economic basket case after it obtained its independence from Britain in 1947 are precisely what have stymied Detroit’s resurgence: excessive bureaucracy, destructive taxes, and bad labor laws. While India has yet to address the last, it has attacked regulations and taxes with a vengeance, with results Detroit’s leaders should note.

Bangalore has also made an important mistake. By favoring the I.T. industry with measures that range from preferential tax treatment to outright land grabs it has created a town too dependent on a single industry. In that respect, it could learn a sobering lesson from Detroit’s sad decline.

More Than Cheap Labor

The conventional wisdom in the U.S. is that companies are flocking to India because its cheap, English-speaking, high-tech labor offers compelling cost savings. India produces 200,000 or so engineers every year, about three times more than the United States. And they typically make about a fifth as much as U.S. workers doing similar jobs.

But India’s technical talent pool has been available for about half a century. Why did the world discover it only in the last 15 years? And why did sleepy little Bangalore take the lead?

Outsourcing began as far back as the 1980s, with U.S. companies contracting out low-end, noncore tasks such as data entry and medical transcription. Although the people performing these jobs were often trained professionals, American companies had little inkling of their true potential until the impending Y2K “crisis” forced them to turn to their Indian partners to reprogram the internal clocks in computers on short order. This event opened up whole new vistas for technical collaboration that are still unfolding.

For instance, Progeon, the outsourcing arm of the Bangalore-based I.T. giant Infosys, began as a call center to deal with customer queries for banks and credit card companies. But soon it began handling all kinds of sophisticated back-office functions, such as processing payrolls and insurance claims. Recently it ventured into knowledge services, offering equity research, credit analysis, fixed income research, bond analysis, economic analysis, industry analysis, and company analysis to investment banks around the world.

Far from being low-end or noncore, points out Vijay Menon, vice president of marketing and communications at Progeon, these services are high-end and essential. “Any service that does not require a direct customer interface or intimate knowledge of local culture or geography is potentially something that can be outsourced,” Menon maintains.

Detroit’s auto companies have jumped on the bandwagon too. The Big Three—Ford, G.M., and Chrysler—and many of their major suppliers have been quietly outsourcing simple computer programming jobs to India for a while. But now they are contracting with companies such as Bangalore’s Harita Infoserve to develop computer models of auto parts and run computer-simulated tests of cars. All three have opened technical centers in India for R&D. And G.M. some time ago handed Reva, a small company in Bangalore, a plum contract to design an electric car. The fastest growing Indian exports right now are not computer programs or software but automotive components, says C.K. Prahlad, an Indian-born professor of management at the University of Michigan business school.

While the outsourcing/I.T. boom that Bangalore spearheaded has spread to other Indian cities, Bangalore remains at the cutting edge of this globalization-of-work trend. It is rapidly moving up the value-added chain so that the foreign companies are now flocking to the city not for its cheap labor, as wages in India are beginning to catch up with those in the West, but for its scientific prowess and business-process know-how. “They came for the cost arbitrage but are staying for the quality arbitrage,” notes Prahlad.

But it was not just serendipity—the Y2K crunch—that caused the West to discover India’s I.T. potential. Nor can you attribute it all to India’s technical talent pool, a necessary but not sufficient condition for the I.T. boom. What was indispensable was the radical restructuring of India’s autarkic economy. Karnataka, the state where Bangalore is located, aggressively took advantage of India’s new climate of economic openness, attracting huge new investments from abroad and, as important, unleashing its entrepreneurs at home.

Lesson One: Break the Regulatory Shackles

It needs to be said at the outset that no government in the U.S., not even Detroit’s, has ever imposed the kind of crushing regulations that the Indian government imposed during the height of the notorious License Raj in the mid-’50s. Key industries—steel, telecommunications, airlines—were nationalized, but even more harmful was the Kafkaesque web of regulations that the remaining private businesses had to endure in the name of ensuring a “rational allocation of resources.”

Every move of private industry, big or small, was subject to licensing. Forget setting up a new plant or a factory. If an enterprise wanted to buy or import equipment, change its product mix, or even produce more than its allotted quota for a product, it had to first obtain permission from the Directorate General of Technical Development, a process that could take years and a small fortune in bribes, points out Gurcharan Das, author of India Unbound and former CEO of Procter & Gamble, India. “Large business houses set up parallel bureaucracies in Delhi to follow up on files, organize bribes, and win licenses,” he recalls.

Confronted with a massive fiscal crisis and the prospect of defaulting on its international debt obligations, the Indian government dismantled much of this ridiculous licensing regime in 1991. In a bid to boost exports to replenish the country’s empty foreign exchange reserves, it also eliminated all import licensing and slashed tariffs on capital goods. Both were relics of India’s import-substitution days, when manufacturers were discouraged from buying equipment from abroad in order to build the domestic industry. This jacked up production costs and made the country’s exports hopelessly uncompetitive.

Trade liberalization was a boon for the I.T. industry, which already had escaped many of the stultifying controls that other industries faced simply because the architects of India’s industrial policy had failed to anticipate its birth. Thus, while there was a ministry to regulate every other sector—steel, banks, insurance—there was no Ministry of Information Technology until 1999. (After India won several international beauty contests in a row, one politician quipped that the country had experienced an I.T. boom and a beauty boom because the state had stayed out of both.) Yet despite the availability of a crucial resource—a ready pool of English-speaking high-tech professionals—the industry was thwarted by the country’s restrictive trade laws.

Once those were relaxed, writes Infosys founder N.R. Narayana Murthy, the man who pioneered India’s I.T. revolution, it no longer took 13 months and 25 visits to Delhi just to obtain a license to purchase a computer. “Or a wait of five days,” he adds, “to get permission from a clerk at the Reserve Bank of India [the government bank monopoly] to decide whether the managing director of a software firm could travel abroad for a day.”

All this improved the business climate dramatically. Karnataka went even further than the rest of the country to liberate private industry, especially the I.T. sector, from the remaining government shackles.

A 2001 report prepared for the U.S.-based chipmaker Intel by Feedback Consulting, one of the most respected consulting companies in South India, recommended Bangalore over other cities for the company’s India headquarters because along with perfect weather—a huge advantage in attracting talent—Karnataka had the most industry-friendly state government in the country. One of the most important moves Karnataka made to acquire this reputation (surpassed in recent years by other states) was that it signed up for the central government’s Software Technology Parks of India (STPI) initiative ahead of other states. The importance of this initiative in making Bangalore the Silicon Valley of India cannot be exaggerated.

STPI gave I.T. companies in Karnataka a nearly complete exemption from central government taxes. In addition, it enabled Karnataka to release its businesses from the government’s telecommunications monopoly by opening Internet access to competing private providers. This meant better, cheaper, and more reliable lines of communication with overseas clients, something Indian companies sorely needed to deliver projects in an efficient and timely manner.

Aside from prying open the government’s telecom chokehold, the most liberating feature of STPI was that it established a special liaison between I.T. companies and the central government for all the statutory approvals—project approval, import approval, bonding and export certification—they needed to proceed with their projects. “This single-window clearance meant that industry no longer had to go from department to department to obtain licenses,” explains B.V. Naidu, STPI director in Bangalore.

What’s more, unlike other states that limited STPI certification to companies located on special campuses, Karnataka extended it to any company anywhere in the city. “This made all of Bangalore a potential business area,” notes V. Ravichandar, Feedback Consulting’s founder and CEO.

Combined with the state’s lax enforcement of zoning laws against mixed uses, broad STPI certification empowered any geek with a computer and e-mail to write and deliver software to anyone in the world right from his home. So while Bangalore has its share of corporations in downtown high-rises and on sprawling I.T. campuses, it is also home to multimillion-dollar companies operating out of modest bungalows in residential neighborhoods.

One such company is Dhruva Interactive, which designs video games. It is sandwiched between the walls of two houses on a street so narrow that two cars have difficulty scraping past each other. Dhruva’s neighbors have been complaining about the odd hours it keeps—a result of the time difference with its overseas clients—so it plans to move to another location after 10 years in its current space, says Rajesh Rao, 35, the company’s sweetly exuberant and immensely tech-savvy founder. But there are other streets nearby where people have sold to commercial developers the homes in which they had long planned to retire.

Bangalore is in the midst of a huge reshuffling of real estate, as property, unencumbered by rigid, U.S.-style land use rules, freely changes hands from less to more valued uses. This is making a lot of people very rich very quickly. And it is creating the sort of densely packed, mixed use neighborhoods celebrated by the urban theorist Jane Jacobs, as doctors’ clinics, home accessory boutiques, and roadside cafés—not to mention the proverbial corner grocery stores—crop up like mushrooms in areas that once were almost exclusively residential.

If Bangalore has made giant strides to release its entrepreneurs (at least its I.T. entrepreneurs) from stifling government regulations, Detroit has taken a few baby steps at most. Some of its leaders, such as former Mayor Dennis Archer, began talking about creating a one-stop shop akin to STPI’s single-window clearance for prospective businesses back in 1992. But Archer’s hip hop–loving, earring-sporting successor, Kwame Kilpatrick, is preoccupied with attracting big, glamorous Aswan Dam–type development projects and has little time for mundane process improvements.

In Detroit the city does not even know what property it holds, as a steady stream of abandoned buildings keeps reverting to its ownership. Prospective developers trying to acquire land are left languishing in limbo for months as the city council—a dysfunctional entity that has to approve the sale of all city-held property—tries to clear up title and lien issues. For developers, time is money, and more often than not they simply give up in disgust.

The city’s bureaucracy and red tape thwart not only outside developers seeking to do business in Detroit but an even more critical source of urban vitality: entrepreneurship by city residents themselves. In the name of protecting public health and safety, the city imposes a plethora of licensing requirements and fees on 265 occupations (60 more than the state government licenses), from street vendors to day care centers. A home-based business needs 70 or so building or equipment permits to get started. Hair braiders have to spend thousands of dollars and 1,500 hours in mandatory training for a cosmetology license.

The taxi industry is virtually nonexistent in Detroit, as any visitor who has tried to hail a cab can testify. The city has restricted the number of taxi licenses so tightly that new entrants simply can’t get one, even if they can somehow arrange the $10,000 or so that a license costs on the open market. As if this were not enough, Detroit revised an existing ordinance in 1996 to further regulate and restrict the number of limousines and vans, so they have been squeezed out of the city as well. If my Bangalore driver Nanjappa had moved to Detroit rather than Bangalore, he probably would have been crushed by the city bureaucracy and wound up on welfare.

Lesson Two: Remove Destructive Taxes

Bangalore has benefited not just from the central government’s efforts to reduce onerous bureaucracy and red tape but from its radical reform of the federal tax system, once among the most punitive and complicated in the free world. Now Indian states also have started to simplify their tax schemes, something neither Michigan nor Detroit has found the will to do.

At its peak in the 1970s, India’s top marginal corporate income tax rate was 93.5 percent. This, combined with an 8 percent tax on wealth, meant those who played by the rules could count on effectively handing over their entire profits to the government at the end of the year.

The 1991 reforms dramatically changed this situation. India not only lowered the marginal income tax rate for corporations and individuals to between 30 and 35 percent (not counting deductions); it slashed the wealth tax to 1 percent and abolished the estate tax. The reforms are ongoing and are not limited to the national government: Last year 21 of India’s 29 states joined hands—a major political miracle—to end a bewildering system of multiple state-level sales taxes that even seasoned accountants couldn’t fathom. This system taxed not just the added value but the whole accumulated value of a good at each stage of the production process, including the taxes paid at prior stages. “In effect, you had taxes on taxes on taxes,” explains Anil Sood, founder of Digital Promoters, a New Delhi–based company that makes industrial equipment. This generated mountains of paperwork, created numerous market distortions, and bumped up prices for consumers without delivering better products.

This insane system has been replaced with a far simpler retail-level value-added tax of 12.5 percent. “This is not necessarily lower,” says Sood, “but it is more rational and less capricious.”

Tax reforms, coupled with trade liberalization that exempted all exports from taxes and slashed duties on imported goods, gave a big boost to I.T.

The Indian government, acting on the theory that the I.T. industry would propel broad-based economic development in the country, has given the industry targeted tax breaks as well. Around 1999, New Delhi declared a 10-year holiday from corporate income taxes for all STPI-registered companies.

But special tax breaks, notes Arvind Panagariya, an economist at Columbia University, have at best helped the industry at the margins. “If it were up to me, I’d end them today,” he bristles. The fundamental reason for the software boom, in his opinion, was that India abandoned its import substitution approach and made it easier for the I.T. industry to acquire cheap equipment from abroad and combine it with cheap, high-skilled labor at home to produce cost-effective global exports.

India could do this in the manufacturing sector as well, argues Panagariya, if the country’s labor laws did not prevent it from taking advantage of its massive reserves of low-skilled workers. Those rules make it virtually impossible for factories with more than 100 workers to fire anyone or to shut operations, even when they are losing money hand over fist. Factory owners have been known to lock up plants in the dead of the night and skip town to avoid total financial ruin. Such labor laws have perversely encouraged manufacturers to adopt capital-intensive technologies in a country with a large pool of unemployed people.

Like India, Detroit knows how to use the tax code to play favorites. Nearly every large company that has moved to Detroit in the last decade, including Compuware and G.M., has done so only after being promised hefty tax breaks. But what the Indian central and state governments are also doing—and Detroit and Michigan are not—is reforming the overall tax climate to make it more friendly to enterprise.

According to the Mackinac Center for Public Policy, a Michigan-based think tank, Michigan is one of just a handful of states that levy a sales tax, a personal income tax, and a business tax. The last, called the Single Business Tax (SBT), has the most pernicious effect on entrepreneurship and job growth because it taxes firms on their costs and investments rather than their profits. If a company adds employees, its SBT goes up. If it raises wages, its SBT goes up. If it buys new equipment, its SBT goes up.

Political leaders from both parties have long recognized the perversity of this tax, but they haven’t been able to muster the political will to wean the state off it. (At press time, reformers were making a renewed push to scrap the SBT.) Michigan’s political pusillanimity contrasts sharply with the bold reform of the state sales taxes in India, where leaders divided by language, religion, class, and caste managed to unite behind a single tax scheme, even persuading local politicians to forgo what they have long regarded as their God-given right: selectively handing sales tax exemptions to favored groups to build their fiefdoms.

On top of all the state taxes, Detroit adds several of its own, including a 5 percent tax on residents’ utility bills (which goes, bizarrely, to the police), a 2.5 percent personal income tax on residents, a 1.25 percent personal income tax on people who work in Detroit, and a 1 percent corporate income tax. As if that were not bad enough, the city charges such a high assessment on property when it is sold that few buyers are willing to pay it, freezing the real estate market and forcing owners to burn or abandon their houses. For a family of four making $50,000, Detroit is the eighth highest-taxed city in the nation.

Radical tax cuts along with deregulation awoke the world to Bangalore’s I.T. potential. It is unclear where Detroit’s potential is; only a free-market discovery process can reveal it. But whatever it may be, it will remain hidden so long as Detroit’s onerous tax burden and regulations keep scaring businesses away from the city.

What Detroit Can Teach Bangalore

Bangalore—and India—have not done everything right. On the theory that a continuing I.T. boom will lift India out of its poverty, Indian policy makers have made it their top priority to satisfy the industry’s needs, as opposed to continuing the general liberalization of the economy. “We want to promote, not obstruct, I.T.” is a mantra among India’s bureaucrats.

That’s a sign of I.T.’s success in transforming the country’s Zeitgeist: The intelligentsia that reviled private industry as a rapacious exploiter 20 years ago is now embracing it as a savior. Former Prime Minister Atal Bihari Vajpayee called India’s software technology parks the “new temples of modern India.”

But hitching your wagon to a single industry does not a resilient economy make. For proof, you need look no further than the ruins left by Detroit’s dying auto industry.

While India’s central government has released I.T. from the shackles of the License Raj, most state governments, including Karnataka, have yet to release other service industries from the Inspector Raj. Madhu Menon, the founder of Shiok, a trendy Thai restaurant in Bangalore, laments that city inspectors trolling for bribes routinely threaten to shut him down on the slightest pretext.

Furthermore, while there are entire bureaucracies dedicated to helping I.T. companies obtain all the government clearances they need, small businesses like Menon’s get no help whatsoever. Quite the opposite: To obtain a license to open his restaurant, he had to pay four times its cost in bribes. Indeed, the I.T. industry’s ability to put more grease on bureaucratic palms for the few government clearances it does need has significantly bumped up the going rate of bribes for people like Menon.

And while the I.T. industry’s tax load has been reduced to nothing because of all the targeted tax breaks, Menon’s tax burden has increased, thanks to the new value-added tax, which applies to previously exempt service industries. Menon concedes that in the pre-I.T. days, people wouldn’t have had the disposable income to support restaurants like his. “But it is simply not fair that I.T. should receive so many freebies,” he insists.

Narendra Pani, a columnist at Bangalore’s Economic Times, complains that I.T. uses its prestige and economic clout to win disproportionate amounts of public funding for projects useful to the industry. S. Nagarajan—founder of 24/7, one of Bangalore’s biggest call centers—retorts that the city’s poor infrastructure forces I.T. to internalize costs that are traditionally borne by the public. For example, his company has to arrange for the transportation of thousands of employees because of the lack of reliable public transportation. He argues that the things I.T. wants—better roads, a reliable power supply—are things everybody else wants too.

But not all of I.T.’s demands are so broad-based. According to Clifton D’Rozario of the Alternative Law Forum, a Bangalore-based public advocacy group that opposes liberalization and globalization, a budget the state government drew up some years ago with the help of the Bangalore Agenda Task Force, a group packed with industry bigwigs, allocated Rs. 75 million (about $1.5 million) to convert a prison in the middle of town into something called the Freedom Park to better showcase the city to foreign investors. What did Bangalore’s 765 slums—about 35 percent of the city—receive for schools, sewage, and drinking water? A mere Rs. 70 million. “What is outrageous about this is not just its inequity,” D’Rozario fumes. “It is the extent to which I.T. has been allowed to insinuate itself in the governance process.”

Worst of all is the state government’s rampant abuse of its eminent domain powers to acquire cheap land for I.T., especially from farmers. Gauri Lankesh—the editor of Lankesh, Karnataka’s premier alternative weekly—notes that the government routinely forces farmers off land they have owned for generations and pays them about a tenth of its market value. “Indian laws don’t allow farmers to either negotiate or refuse the deal,” she seethes. Many of the farmers become penniless squatters in Bangalore’s slums. Farmers are so incensed at these land grabs that some in Bellandur, a village near Bangalore, staged a big protest when Infosys announced plans to build a new campus there. Many of them are being pushed into the arms of an atavistic, anti-globalization left—the only group paying any heed to their plight.

Requiring I.T. companies to buy land on the open market isn’t just basic fairness. It’s also good economics. Detroit paid a heavy price for ignoring this principle back in 1981, when city authorities bulldozed a vibrant little community of Polish immigrants—fondly called Poletown—to make room for a G.M. auto plant. About 4,200 people were displaced and 140 businesses evicted. Just as Bangalore’s I.T. industry is doing now, G.M. promised thousands of new jobs and more tax revenues for the city. Twenty-five years later, the jobs have not materialized, and the city is even more of a wasteland. Entire neighborhoods lie totally gutted. The city’s tax base has completely eroded, and it is in such a big financial hole that half a decade ago it was temporarily put under state receivership.

More recently, using the threat of condemnation, Detroit authorities bought out thriving businesses, including restaurants, pubs, and cement silos, to make room for a massive casino project on the Detroit River. The project fell through, and one of the last happening parts of Detroit is now a ghost town.

The lesson for Bangalore from Detroit’s experience is that when government takes the economy in its own hands, three things inevitably happen: It tramples on people’s rights; it assists not the most promising but the most powerful businesses; and it squeezes out the spontaneous economic activity that is the source of sustained growth. That is not an approach worth emulating.

Lessons for Everyone

By allowing companies to access the best minds and best resources anywhere on the planet, globalization has enriched just about everybody touched by it, from my driver in Bangalore to consumers in the United States. India’s poverty rate has been cut by half in the last 25 years, in large part due to the I.T. boom; meanwhile, a report from the McKinsey Global Institute estimates that global outsourcing returns 45 percent to 55 percent in net savings to businesses, money they can invest to create better products and more jobs. But the biggest advantage of globalization is that by allowing people and businesses to vote with their feet, it helps sort the policies that work from those that don’t, regardless of where they are implemented.

For America’s founders, the states were laboratories to test diverse ideas. In a sense, globalization has made the whole world a giant laboratory whose lessons are equally available to all. The greatest lesson of Bangalore’s and India’s economic experiment, warts and all, is that entrepreneurs unfettered by crippling regulations and onerous taxes are capable of doing great things.

If only Detroit and other depressed cities, both in the U.S. and elsewhere, would learn this lesson.

Inherit the Windfall

info@reason.com (Shikha Dalmia) — Wed, 09 Nov 2005 00:00:00 EST

When surging oil profits prompted both conservative and liberal members of Congress to summon oil company executives to Capitol Hill for a hearing earlier today, a public relations rookie crafted the statement below for the oil chiefs to deliver to their interrogators. Cooler heads prevailed, however, and the statement was discarded in a gilded trash bin. An underpaid Reason intern moonlighting as a janitor salvaged it for publication. Here it is:

Good morning to you all.

We would like to thank you for giving us the opportunity to address this august body, but, frankly, being summoned for a Grand Inquisition and threatened with the confiscation of our so-called windfall profits is not our idea of fun.

Yes, we all made record profits this past quarter. We are proud of this achievement and, indeed, in the future hope to surpass it. Our survival and success depends on producing value for our investors, most of whom are ordinary, middle-class Americans—your constituents, as a matter of fact—who invest in our stocks through their pension funds or 401K accounts.

Our aggregate profits are so large because we have huge sales. But our profit margins—the more relevant measure—are below the overall Standards and Poor industry average. Exxon Mobil, the most profitable company among us, posted $100 billion in sales last quarter —the first American company to hit that mark ever. But its profits were $10 billion—hardly a margin that suggests the "price gouging" that some of you have accused us of.

In fact, the oil industry's margins are well below those of Gannett, the largest newspaper corporation—and no doubt far, far below those of Fox News, whose pandering populist anchor, Bill O'Reilly, maximizes his company's profits by questioning our right to maximize ours. If you really want a reliable revenue stream, why not tax windbags instead of windfalls?

Besides, we already tried windfall profit taxes—along with leisure suits and polyester ties—with disastrous results.

During the period between 1980 and 1987, the last time when such a tax was in effect, 1.6 billion fewer barrels of oil were produced—because such taxes diminish the incentive to produce oil.

Furthermore, if we are prohibited from recovering our exceedingly high storage costs, we will be less inclined to maintain large oil inventories that help tide the country over during production disruptions caused by calamities such as Hurricane Katrina. Please note that even though oil prices went up during the hurricane, no one outside the disaster area had to go without oil. Surely that is preferable to acute shortages and long waiting lines at the gas pump, which cause American workers to lose wages and the American economy to lose productivity.

In a market economy, price is set by supply and demand, not wishful thinking. The price of oil has gone up because of growing demand from emerging economies like India and China and disruptions in supply due to natural disasters in North America and political instability in Latin America and Iraq. If we could collude to raise oil prices whenever we pleased, why didn't we do so last year when prices at the pump dropped to nearly a dollar a gallon? Moreover, why would the inflation-adjusted price of gas still be no higher than what it was a decade ago?

But if you are going to threaten us with additional taxes when we post profits, in the interest of fairness, shouldn't you also give us tax refunds when we suffer losses? Our refiners posted losses of more than $1 billion in 2002. Should they expect a retroactive refund? Will you shield us if an alternative fuel source threatens to put us out of business? No business can afford to take market risk if it can't reap commensurate rewards.

The term "windfall profits" implies unearned, ill-gotten gains. We earn our profits by producing something of value for our consumers. True windfalls are the budget surpluses that flow into the government's coffers—without your having to lift a finger—when industries like ours become more productive. Since some of you are trying to persuade the public by promising to rebate our profits to consumers, perhaps you should also agree to return the next Federal surplus directly to the taxpayers (on the off chance that you ever run a surplus again).

One final word to House Speaker Dennis Hastert, the Republican from Illinois who has been disingenuously hectoring us to increase our production capacity: Sir, there is nothing we would like better. But in order to appease the environmental lobby, you and your colleagues have dragged your feet about opening up the Arctic and other oil reserves. Moreover, building a new refinery has become prohibitively expensive, given all the environmental requirements you have imposed. It took Arizona Clean Fuels five years just to get air-quality permits to build a small refinery outside of Yuma. It is not our fault that no new refinery has been built in this country in the last quarter of a century.

If you are serious about boosting national oil production, we suggest you start by taking a good look at all the impediments you have put in our way and leave us alone to serve our customers and investors.

The Pleasure of Climate Change

rbailey@reason.com (Ronald Bailey) — Wed, 10 Aug 2005 00:00:00 EDT

Assume dangerous global warming is happening. What to do about it? If accumulating greenhouse gases in the atmosphere— gases produced by burning fossil fuels and other human activities—are to blame for increasing global temperatures, the adage "the first thing you do when you find you're in hole is stop digging" comes to mind. So the obvious idea is, why not stop emitting greenhouse gases? This is the strategy embodied in the Kyoto Protocol which mandates cuts in the emissions of greenhouse gases by the industrialized countries that have ratified it.

Under the Protocol, industrialized countries are supposed to cut their emissions in 2012 by about 5 percent below the amount of greenhouse gases they emitted in 1990. However, it is widely recognized that such an emissions cut would reduce projected future warming by 0.02–.028 degrees Centigrade by 2050. This is only a small amount of the warming projected by climate computer models. In order to avoid worst case scenarios, some estimates are that greenhouse gas emissions will need to be cut by as much as 80 percent by 2050.

The Kyoto Protocol is the first step toward creating an increasingly stringent international system for rationing greenhouse gases. Rationing is costly. One widely cited estimate suggests that implementing the Kyoto Protocol would cost $716 billion, with costs outweighing benefits by 7 to 1. Rationing is also painful—it means denying people something that they want. With regard to the Kyoto Protocol, rationing means denying access to the cheap energy that fuels economic growth and development. Right now, most developing nations are signed onto the Kyoto Protocol because it doesn't require them to do anything at all about their emissions. However, industrialized nations that are now committed to reducing their emissions expect developing countries to agree to cut their emissions during the next round of climate change negotiations, which is slated to begin in Montreal in December. After all, many developing countries are rapidly increasing their greenhouse gas emissions.

For example, China hopes to quadruple the size of its economy by 2020 and doing so means much higher energy use. In fact, by 2020 China will likely emit more greenhouse gases than the United States which is currently the world's largest emitter. In addition, India's economy is growing swiftly and its greenhouse gas emissions are expected to triple by 2020. Will these two rising economic powerhouses slow their development by agreeing to reduce their access to cheap energy under a new more stringent version of Kyoto Protocol style rationing?

The International Energy Agency's (IEA) business-as-usual projection finds the global annual emissions of the chief greenhouse gas, carbon dioxide produced by burning fossil fuels, rising by 60 percent by 2030. Even assuming a strong push for increased energy efficiency, the IEA projects that carbon dioxide emissions from industrialized countries will be only 16 percent lower than its business-as-usual scenario in 2030.

The Kyoto Protocol inflicts pain by imposing an energy quotas on countries, which leads to increased costs and slower economic growth. Thus it's not surprising that even the European Union, rhetorically the strongest supporter of the Kyoto Protocol, is nevertheless falling far short of meeting its emissions targets.

If pain is not working as enough of an incentive to reduce greenhouse gases, what about pleasure? If not sticks, why not carrots? The new Asia-Pacific Partnership on Clean Development and Climate announced last month by the United States, China, India, Australia, Japan, and South Korea may be a step towards developing positive incentives to reduce greenhouse gas emissions. Greenhouse puritans dismissed the proposed Partnership as "Too Much of Nothing," but it does contain the seed of alternative path toward reducing greenhouse gas emissions, a Zero Emission Technology Treaty.

The ZETT has been proposed at the 9th Conference of the Parties meeting of the United Nations Framework Convention on Climate Change in 2003 by Taishi Sugiyama, a researcher at the Central Research Institute of the Electric Power Industry in Japan. Sugiyama notes that allocating emissions quotas is an inherently adversarial win-lose process. Such international allocations also lead to distrust as signatories look for loopholes for themselves while suspecting others of cheating. Sugiyama also suggests that the Kyoto Protocol style quotas, because they are unpredictable, offer relatively weak incentives for technological innovation.

Under a ZETT, countries would commit to a long term goal of zero emissions of greenhouse gases from energy production by a certain date. Adopting this simple workable goal would send the right signal to energy producers and consumers over the coming decades. Thus the ZETT would strongly encourage innovation in zero emission technologies. Instead of using sticks to encourage technological progress, a ZETT uses carrots: predictable markets in new no-emissions energy technologies.

The Clean Development and Climate Partnership pledges to "develop, deploy and transfer cleaner, more efficient technologies and to meet national pollution reduction, energy security and climate change concerns." Many of the technologies listed by the Partnership are zero emission. Developing countries such as China and India which will be reluctant to reduce their energy consumption as they grow their economies will favor a treaty that aims at reducing greenhouse gases but that also more securely fosters their long term technological progress. Time will tell if the new Partnership is a first baby step away from looming win-lose fights over the Kyoto Protocol emissions quotas toward a new win-win Zero Emission Technology Treaty.

Illegal Cities

info@reason.com (Robert Nelson) — Mon, 01 Aug 2005 00:00:00 EDT

The Future of Terror

tcavanaugh@reason.com (Tim Cavanaugh) — Thu, 07 Jul 2005 00:00:00 EDT

Today's deadly bombings in London have stirred up a familiar set of questions about foreign policy, anti-terrorism, and international security. How vulnerable is the United States to a similar attack? What preventive measures are possible? What happened to the "Iraq flypaper" theory of terrorism? Does the persistence of terror attacks justify Anglo-American policy or undermine it?

John Mueller is the Woody Hayes Chair of national security policy and professor of political science at Ohio State University. He has written on a wide range of subjects, from defense and security to the liberating power of capitalism. His most recent book, Remnants of War, argues that war itself is declining, largely abandoned by the developed countries and left now to small groups of thugs and criminals. Mueller spoke with Reason from his home in Ohio.

Reason: You're wary of the dangers of overreacting to events like this. Would you say the reaction so far today—at least in the U.S., where the Orange Alert has been issued, but only in specific areas—is appropriate?

John Mueller: It would be interesting to find out how much money it's costing, and ask the taxpayers whether it's worth it. I think you might get a negative answer from quite a few people to the idea that because something happens 3,000 miles away we have to spend all this money on heightened security. If it turns out it costs $1.98, it's definitely worth it.

Reason: What about the closing-the-barn-door effect? When they attack airplanes, we go nuts on air travel; now we're concentrating on ground-based transit—in both cases tightening security after the fact.

JM: And on exactly the same thing that was attacked. Presumably the terrorists would be wise enough to try something else rather than doing the same thing they did before. This is fairly standard procedure. It seems to me it's now physically impossible for somebody to hijack an airliner and fly it into a target. They couldn't even get into the cockpit, much less take it over, given how the passengers would react. Nonetheless we're spending an incredible amount of money to guard against a virtual impossibility. They could still blow up an airplane, but they can't take it over. The same thing applies with today's attack. You simply can't police every single metro train or bus.

Reason: You were opposed to the invasion of Iraq. All day today we've seen ghoulish opportunists on both sides of that debate making the claim that this proves their own view of U.S. policy. Is there any real conclusion we can draw from these attacks?

JM: In one sense it's going to help Bush because it supports his argument that terrorism is still out there. On the other hand it undercuts the argument that the reason there haven't been any terror attacks in the U.S. is because the terrorists are all tied down in Iraq. I don't know that anybody has made that argument officially, or if Bush himself has made that argument, but it's certainly been around. And Bush has implied it by saying Iraq is the central arena in the fight against terrorism. But this clearly wipes out that argument, which wasn't a particularly good argument in the first place.

Reason: It does seem striking that there have been major attacks on U.S. Iraq allies, but not on the European countries that sat the war out. Do you see a connection?

JM: Yes. In the case of Madrid, the terrorists were trying to have an effect on the country's Iraq policy. And they were very lucky from their standpoint, because the conservative government handled the attacks very badly. The election came out the way it did largely because of that. If you look at the claims on their websites about today's attack, it certainly seems plausible to me that they're attacking the U.K. over specific policy matters. But of course, we don't know if those sites are really valid.

Reason: What about factors specific to the U.K.—that it has a fairly radicalized population of first-generation Muslims, etc.?

JM: Well, an attack on the U.K., from the standpoint of the war in Iraq, would be a big achievement, because there is a huge number of people, in fact a substantial majority of people, who think the war was a really terrible idea. So it makes sense to try and get those people activated. The dilemma of the U.K., of course, is that they want to get out of the war, but they want to do it for other reasons, not because of a terrorist attack.

Reason: In your book The Remnants of War you see war as being increasingly de-normalized since the 18th century. How do attacks like these fit into that pattern?

JM: They're not war; they're terrorism. That's why we call them terrorism. Crime will always be here, and so will terrorism. There will always be some nutcase with a bomb or some chemicals like the Unabomber. So when it's really small like that, we tend to call it terrorism rather than war. When it gets large enough or sustained enough as in Iraq we tend to use phrases like guerilla war or unconventional war. Sporadic cases like this I don't consider war.

Reason: 9/11 was pretty large and spectacular, and had a massive body count. By that definition, shouldn't it count as an act of war?

JM: Yeah, you can make that case. The people who do the accounting had a lot of trouble with this and decided to call it a war. The usual threshold is about 1,000 battle deaths. That would obviously pass in this case. That attack was an outlier; there haven't been any other terrorist attacks remotely that destructive, including today's. But yes, quantifying that is a messy thing. I'm inclined not to think of 9/11 as war, not because of the body count but because it has to be a large enough group and has to be sustained. And once a year doesn't count as sustained. I don't want to downplay the significance of 9/11; I'm just disinclined to call it a war. But I can see how you might.

Reason: What could the United States and the United Kingdom do now that would either accelerate or impede the trend of declining war you see in your book?

JM: They don't have to do anything. The trajectory is pretty good on that, and the developed world doesn't deserve all that much credit for having helped it along. The main problem is all these civil wars which have now really ended. But there's a lot of peace to be kept. Many countries are fairly stable right now, but because of the wars they've just come out of they're in pretty bad shape. Maybe the G8 could do something to be of assistance. I'm not very optimistic about that. The developed world in general and the United States in particular have been very slow in addressing that. Last year, a United Nations report referred to the peacekeeping paradox: You have situations where wars have ended, and you could actually keep the peace. You don't have to get into a warlike situation, but could just make the peace work. I watched to see who picked up that news item: The Jim Lehrer NewsHour did a segment on it and Business Week did a short piece, and that was it.

If we want to help, we should be working with peacekeeping efforts, and promoting stability in these countries, and of course, simply buying the materials that these countries are producing. All that would be more productive than kicking around after terrorism.

Reason: In your book, you find some fault with the belief that nuclear stalemate kept the world out of war in the post-World War II era. Is the inverse of that true as well—that is, maybe rogue WMDs and of lower-level attacks like this one are not as generally destabilizing as we think?

JM: Yeah, probably; at least we should consider that possibility. It's possible that a war between India and Pakistan is now less likely. Certainly in the case of Iran and North Korea, if they do get a weapon it's primarily to deter an attack upon them. I'm not gung ho about encouraging proliferation, but it can have that impact. In the book I don't argue that nuclear weapons can't make a difference, but that so far they don't seem to have made a difference. And in some cases they might have made a difference: If Kuwait had had nuclear weapons in 1990 it's quite possible that Iraq would not have invaded. And of course if Iraq had had weapons now, it's quite possible the United State would not have invaded—which is what the North Koreans and Iranians are thinking.

Reason: Are there any further civil society implications of an attack like today's, especially in the case of London, which is famously loaded with surveillance cameras that apparently didn't do much to prevent these attacks?

JM: They can't prevent them, but they may be helpful in trying to identify what happened and who's responsible. Even on a tragic day like this, the number of people who died is still pretty small compared to how many people are dying in automobile accidents. I don't want to downplay the tragedy, but you simply can't guarantee that that won't happen. You can't ensure the safety of every train, every bus, every taxicab, every moped, any more than you can guarantee you'll never be mugged walking down the street. If they're cost-effective, I'm in favor of measures that reduce the danger; but I'm wary of ones that are either counterproductive or more damaging than what's been inflicted by the terrorists.

Reason: Short of further hot-war reactions, what is the proper way to bring the war to the terrorists rather than always being on the defensive?

JM: Well we're always on the defensive with crime, right? Police try to catch criminals and deal with them, and we try to have some preventive measures, but unless the amount of destruction gets massively greater, it can be dealt with and absorbed. In the case of the Lockerbie bombing, we didn't retaliate against anybody; we tried to go after the people who did it, and apparently were successful. And the same thing with the bombing in Spain, which is more directly relevant; they simply went after the people who did it, and apparently got them. And that seems to have satisfied people. They're not happy about the tragedy, but the fact that you didn't bash anybody with cruise missiles doesn't seem to bother people.

Reason: But a crime-fighting approach to terrorism is an electoral loser in the United States. John Kerry got clobbered under this argument that after 9/11 he would have dispatched an army of lawyers rather than an army of soldiers. How do you make that approach politically palatable?

JM: Well you can try and make your rhetoric stronger than the other guy's. But after the USS Cole was bombed, the real effort was to figure out who did it. Same thing with Lockerbie. During the Reagan Administration there were a bunch of terrorist activities that they didn't do anything about except try to catch the people responsible. We haven't done anything militarily about the Bali bombing. And after the first World Trade Center attack the reaction was really a police reaction. And nobody's running around saying we should have done something else.

Reason: But they are. It's a very common analysis that 9/11 happened because the U.S.—going back to the Rushdie case or the Beirut bombing or the Iranian hostage crisis—did not take a stronger line. And bin Laden has various quotes about American cowardice that seem to support that analysis.

JM: But a reaction can be counterproductive. And one of the things terrorists want is an overreaction. You haven't seen that kind of reaction over the anthrax attacks. There's been no demand that we attack Dublin or bomb a factory in Mozambique or anything like that. All they're trying to do is catch the guy who did it, so far without success, and it doesn't seem that anybody's out marching in the streets over that.

In the case of Afghanistan there was a target, a place you could go. It's extremely unlikely we'll see many cases like that, including in the London case. What can we bomb? There's no target, so what you're left with is police work.

Reason: What do you make of the fact that the U.S. has, with some exceptions, been mostly free from major terror attacks since 9/11?

JM: The question is whether the terrorists exist in the United States. The FBI has not been able to find a single true terrorist cell in the U.S. So you get the head of the FBI saying that he's really bothered by the things we're not seeing. That's Descartes updated: I think therefore they are.

Clearly it's not the case that every single terrorist is so busy over in Iraq that they can't bomb Brooklyn. But terrorism is a very rare thing that mostly doesn't do much damage. 9/11 is obviously an exception to that. But the total number of people killed by international terrorism is small. So it's not that common a thing in many respects.

Reason: How would you assess the current state of the war on terror, both on President Bush's terms and according to your own thesis of war's increasing obsolescence?

JM: In general it's going pretty well. After 9/11 there was this big increase in cooperation among states. The fact that terrorists have been bombing places like Saudi Arabia means that every state sees them as a danger. So you're not seeing much of the old-fashioned state-sponsored terrorism. The cooperation is imperfect, but a lot better than it was. It's not clear how massive al Qaeda really is. Many people argue it's not really an organization but just a movement. Five different websites have now claimed they did the London bombing, and all of them claim they're connected to al Qaeda. Maybe they are mentally, but it's hard to imagine they are in any organizational sense.

So I think it's in pretty good shape. But the crime rate is also pretty good. That doesn't mean crime doesn't happen.

All That Have Not Fins and Scales

khowley@reason.com (Kerry Howley) — Thu, 20 Jan 2005 00:00:00 EST

Less than two weeks after a 40-foot wave flattened massive swaths of Southeast Asia, the United States slapped a tariff on millions of dollars worth of seafood imports from India and Thailand. As the federal government promised $350 million, and private citizens pledged even more, the message to surviving shrimp farmers was clear: Have our marines, our pity, and our cash, but for the love of God, do not send us your cheap shrimp.

Americans haven't heard much about the shrimp debacle, and there is a reason for that: Shrimping, shockingly, is but a tiny fraction of our national economy. In the targeted countries—Thailand, Vietnam, India, Ecuador, China and Brazil—things are a little different. The tariffs have been big news in the Bangkok Post, Viet Nam News, and Times of India since they were first proposed by American shrimp farmers last year. In Vietnam, fish farming, or aquaculture, has been a successful part of a shift from a centralized economy to a market-oriented one. A country with a per capita annual income of $545, Vietnam has seized on aquaculture to turn out over $400 million in exports to the United States. Elsewhere in Southeast Asia, fish farming is injecting some cheap protein into rice-based diets, helping to combat malnutrition, and transforming shrimp from a pricey delicacy to supermarket fodder. It's a rare development success story—or, it used to be.

Here at home, America's favorite seafood is at the center of a nasty little spat between the farmers, who claim that six nations are collectively forcing them out of business, and distributors, who say, so what? The American shrimpers have employed an oft-abused anti-dumping law and some dubious calculations to argue that foreign farmers are selling their shrimp below cost due to subsidies. Distributors say the foreign shrimp is just cheaper because it's raised on farms rather than caught on trawlers, and tropical shrimpers have key advantages like better weather conditions and cheap labor. The US International Trade Commission has sided with the American shrimpers consistently, and between November 30 and January 6, the commission paved the way for duties ranging from 2.35 percent to a whopping 112.81 percent.

The Southern Shrimp Alliance, which is pressing the suit, is rather indignant on the subject of subsidies. It's a subject the eight-state coalition knows a lot about. In fact, the SSA has accepted generous subsidies from the federal government to help press its lawsuit. That is, the group happily accepts subsidies to fund the war against subsidies in impoverished countries like Vietnam. But if you're not so keen on sending your taxes to prop up an outmoded industry, worry not. Thanks to something called the Byrd Amendment, Louisiana's shrimpers will be much better off in a few months. The Amendment ensures that duties collected in anti-dumping cases will be paid directly to American producers. According to one nonprofit, that adds up to $1 million in payouts for each company involved in the case. Soon, you won't be subsidizing Big Shrimp; the third world will.

That may seem unfair, but the complex web of American trade law sustains yet greater absurdities. According to Deborah Long, an SSA spokesperson, the subsidies the SSA is so worked up about are not government subsidies, but developmental aid. In addition to the World Bank, that aid is provided by our very own US Agency for International Development. The U.S. government has slapped tariffs on third world nations as punishment for accepting U.S. assistance, and now some of that aid will be used to pay those tariffs, which will in turn end up in the pockets of American shrimp farmers. Washington could just write a check to SSA, but that would be protectionism. This, apparently, is anti-dumping.

The dumping allegations themselves are based on a wacky math trick called "zeroing." which is scarily technical, highly disingenuous, and has been declared illegal by the World Trade Organization in other instances. Distributors have a simpler explanation for low shrimp prices. In the U.S., old-fashioned, Bubba-esque shrimpers take out oil-guzzling trawlers and catch shrimp in the wild, while in Asia, farmers raise shrimp in mesh cages. Guess what's cheaper?

Distributors say the anti-dumping hysteria isn't just bad for the far-off third world; it's bad for all of shrimp-scarfing, scampi-loving America. Wally Stevens, the president of the American Seafood Distribution Association, says the US trade czars lack the "common sense of a third grader." The ruling, he says, will threaten 20 times the number of jobs it protects. Distributing and serving shrimp is a much bigger business than fishing for it, and as prices inevitably shoot up, jobs will be lost. Over the past ten years, shrimp has become a staple of the American diet, to the point where we each consume 4 pounds of the stuff every year on average. Fully 87 percent of that shrimp is imported. Tariffs are bad news for Red Lobster, Bubba Gump, and a host of other places in which hyper teenagers serve cheap seafood to middle class consumers.

The January 6 tariff ruling included a promise to "review" the cases of Thailand and India, where the tsunami wiped away entire farms and the very people who farmed them. The UN Food and Agriculture Organization estimates that the industry in Tamil Nadu alone lost $13 million, while Thai exporters say they're out $500 million. But the tariffs will almost certainly go into effect at the end of January, well before any review takes place, and the entire process is mired in slow-moving bureaucracy within a system no one trusts to be logical, just, or sympathetic.

Whether or not the subsidies are eventually revoked, it's a curious message we send to a region absorbing historic amounts of foreign aid. As American NGOs build elementary schools, immunize children, and promote school-feeding for poor Asians, American trade laws are sapping their chances for future employment, closing off markets and crushing industries where Asia has competitive advantages. Development bigwigs can offer a litany of reasons why billions in foreign aid have yielded precious little, but doubling handouts may not be the answer. I'm guessing that the farmers of Vietnam, Thailand, and India don't want to spend the rest of their careers accepting our aid. They just want to sell us shrimp.