Jag Venugopal's Blog

October 14, 2010

Hosannas for Capitalism

Filed under: Project Management — Jag @ 12:28 am

In many parts of the world today, (including among politicians in the US), Capitalism has become a dirty word. As an example, I present to you this quote from President Obama, quoted by WSJ columnist Daniel Henninger

“The basic idea is that if we put our blind faith in the market and we let corporations do whatever they want and we leave everybody else to fend for themselves, then America somehow automatically is going to grow and prosper.”

Two separate events, occurring at opposite ends of the world, at about the same time, prove the robustness of private enterprise and the profit motive. One is in India, and the other, Chile. I will let Dan discuss the role of Capitalism in the Chile miracle, which was enabled by those same profit-seeking capitalists that politicians love to revile. Instead, I will focus on India.

The Commonwealth Games was awarded to India in 2003, and was meant to showcase the advances of the “Great Indian State” (my quotes). Never mind that hundreds of millions of my people live in grinding poverty, and even more without access to clean air and water. It was thought by the powers that be, that the games would propel India to a place of prestige on the world scale.

Instead, what happened was a Libertarian’s dream — a thorough expose of what big government can do — delayed projects, waterlogged stadia, collapsing ceilings and bridges, eighty-dollar rolls of toilet paper, and treadmills costing $17,000. All of these works were accomplished by the socialist republic of India.

About the only bright spot was the newly upgraded Delhi airport. Apparently it looks gorgeous, and was completed on time (in March 2010, well ahead of the Commonwealth Games). The difference between the chaos of the rest of the games and this brand new, gleaming airport? The airport was constructed and operated by a for-profit firm. Similarly, the Bangalore airport (about which the only complaint is that it is so far away from the city) is owned and operated by private capitalists. It replaced a state-owned airport that was probably the dirtiest and most cramped among all major cities anywhere in the world.

India’s economic miracle happened, not because of the state, but in spite of it. Much of the growth has been in sectors that the government either could not regulate or chose not to: cars, pharma, IT, BPO and Bollywood. Where government has involved itself, one can see spectacular failures (e.g. HMT, the state-owned watchmaker which was a monopoly for decades, has virtually disappeared from the markets, to be replaced by private companies. As of 2010, it is still manufacturing hand-wound watches). Similarly, much is made of India’s troops of educated engineers pouring out of universities. Here, too, private enterprise has changed things drastically. My home state of Karnataka is host to over 50 private engineering colleges. A resident of Karnata is virtually guaranteed admission at in-state rates to an engineering college, thanks to these private, profit-seeking enterprises that get to admit students from all over the country for a higher tuition. Is the quality of instruction great? No. But it is often better than what is available in state colleges, and has significantly improved in the last decade. If you were to fall sick in Bangalore, you could take your chances at the state-owned Victoria and Bowring hospitals (named after our former colonial masters) and pray that you come out alive and with all organs intact, or you could have your pick of many world-class hospitals that will take care of you for about a tenth to a twentieth of what it would cost in the US. When I left India two decades ago, the telephone company was a state monopoly. You could either wait for eight years to get a connection, or bribe the local Member of Parliament to obtain one through his “discretionary quota”. As of 2010, profit-seeking capitalists have built a mobile phone network that is the second-largest in the world. Phones are available starting at $10. Air time costs 2 cents per minute (with incoming calls free). Virtually everyone has a phone, including some of the poorest people, involved in tasks such as street sweeping and garbage collection.

When President Obama travels to India in November, I hope he sees the difference between the incompetence of its governments (state and local), and its world-class private industry, which was unshackled merely two decades ago. And having seen that, I wish he would would put his faith stateside in private enterprise, and let corporations do what they do best. If he still wants to understand how effective state intervention can be, he merely has to click on this Wikipedia link.


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