India Uncut

Thomas Friedman writes in the New York Times:

Every time I visit India, Indians always ask me to compare India with China. Lately, I have responded like this: If India and China were both highways, the Chinese highway would be a six-lane, perfectly paved road, but with a huge speed bump off in the distance labeled "Political reform: how in the world do we get from Communism to a more open society?" When 1.3 billion people going 80 miles an hour hit a speed bump, one of two things happens: Either the car flies into the air and slams down, and all the parts hold together and it keeps on moving - or the car flies into the air, slams down and all the wheels fall off. Which it will be with China, I don't know. India, by contrast, is like a highway full of potholes, with no sidewalks and half the streetlamps broken. But off in the distance, the road seems to smooth out, and if it does, this country will be a dynamo. The question is: Is that smoother road in the distance a mirage or the real thing?

That's a first para of a piece that should really be titled Love Song to Bangalore No. 884, by a man who makes supporters of globalisation, like me, cringe sometimes at his effusive praise for that city. He sees, or chooses to focus on, only that small elite chunk of India that can benefit from globalisation, and ignores the vast majority, which is denied access to it.

Much as we hype India's liberalisation, it has taken place in an extremely limited manner, and does not touch much of India. In Law, Liberty and Livelihood, a wonderful book I've been reading that's been edited by Parth Shah and Naveen Mandava of CCS and Spontaneous Order, illustration after illustration is given of how licences, permits and quotas suck the lifeblood of our economy by making it impossible for a poor or middle-class entrepreneur to build a business, or even make an honest living.

Take starting a business, for example. Shah and Mandava write: "Enterpreneurs can expect to go through 11 steps to launch a business over 89 days on average, at a cost equal to 49.5 per cent of gross national income (GNI) per capita." Contrast the figure of 89 days with two days for Australia.

Another figure: Delhi has more than 500,000 cycle rickshaws, which is thus, obviously, the current size of the market. But the government has decided that the people don't need so many of them, and has fixed a limit of 99,000 licenses (of which less than 75,000 have been given out). Shah and Mandava comment:

This makes more than 80 per cent of Delhi's cycle rickshaws illegal. This government created illegality exposes the pullers to constant harassment and extortion. One study suggests that on average a bribe of Rs 200 per month is paid by each cycle rickshaw puller. That makes the total amount stolen by the municipal and police officers at Rs. 80 million a month! [My emphasis.]

But cycle rickshaws are just one example. Street hawkers to railway porters to small-time shopowners and businessmen face a similar cycle of enforced illegality and systematic extortion by authorities, which results in a tragic wastage of capital. It traps all of these small-time enterpreneurs in what Shah and Mandava call a "cycle of poverty", and cripples the economy in the process. This is also a primary reason for the inequalities that exist in India today. Those inequalities are not the fault of globalisation and free markets, but of there not being being enough of those things, of the poor people of India, indeed, most of India, being cut off from these processes.

For more on why capitalism has not been a panacea for third-world countries, I suggest you read the books of Hernando de Soto, especially The Mystery of Capital, which I've been reading this week. It's an education.

A longer piece on this subject is on its way.