Tag Archives: Thatzwhy

Shruti on Bhopal

If I were to write a post on Bhopal, I would write almost exactly what Shruti has written.

You can, if you wish, paint Bhopal as an example of rapacious profit-seeking corporations putting profits above human lives. You can argue that thatzwhy we need strong regulations. But your argument will run into the problem that Bhopal occurred in 1984, in the India of the license-permit-quota raj.  Not all the permissions that Union Carbide had to seek, not all the inspectors they were forced to bribe, could prevent the disaster from occurring. Once it did occur, the paternalistic State, instead of looking out for its children, sold them out.

So, if the failure of the free market makes the case for regulations, does the failure of regulation make the case for loosening them? Well, that’s not what usually happens.  We’re more likely to hear that Bhopal makes the case for strengthening the regulatory framework.  We don’t need deregulation. We need stronger, more effective regulations, the argument goes.  If we don’t have strong regulations, what is to prevent corporations from creating a Bhopal every other day in pursuit of profits?

Well, strict liability and the tort system, for one. If we could sue the pants off any company that dares to impose harm on third parties, we would see fewer industrial disasters.  If we junk half our regulations and use the resources freed up to modernize our courts so that they deliver verdicts in months rather than decades, we will be much, much better off than we are. Shruti notes in her piece that the Indian government actively worked to minimize the compensation victims could claim from Union Carbide. This phenomenon is familiar, and has a name – regulatory capture.

I Wasn’t Talking to You

The dark lord says:

The typical arguments are made by the right too. If the economy is going good “see, the deregulation has brought about unprecedented wealth. How can you propose more regulation?”

When the economy goes bad, we get the answer “see, the crisis is brought about due to regulation in the housing mortgage market. How can you propose more regulation?”

Yes, the libertarian right makes this argument, but there is a consistency in it. We believe that most regulations do harm, and that a lightly regulated economy works best.

If the socialist left made the counter-argument, that too would be internally consistent. If you really wanted to regulate the economy all the way to the Soviet Union, you could justifiably claim that both the US and India are variants of the same system. But in my post, I wasn’t arguing with the socialist left – I don’t need to, as history has already answered them.

My argument is with those who say that “we need a free market with some regulations, but that doesn’t mean that we should be socialist”. If you hold that belief, I would expect you to believe that there is some point at which additional regulations do more harm than good, so you’d support some regulations and oppose others. But what I notice is that for supporters of regulation, the right amount of regulation is always “A little more than we have now”.

We Always Need More Regulations

As Ajay Shah points out, we don’t just regulate our financial system, we micro-manage it. When things are going well in the US, and we make the case for deregulation, we get the answer: “See, even in the US, we don’t have a completely free market system. Even they have regulations. How can you propose that we junk ours?”

When things go wrong in the US, we get the answer: “See what happened to the US because they followed a free market system? How can you propose that we junk our regulations? We need more.”

This bias ensures that we will always follow suit when the US moves left, never when it moves to the right.

The August Pragati

Have you picked up the August 2009 issue of Pragati yet?  It is good. The focus this time is on legal and regulatory reform and it has been guest-edited by Shruti Rajagopalan.  My favourites are this piece by Ajay Shah about the changes in legal regime required for  further Financial Reform, Aadisht’s article on the widespread prevalence of retail corruption in India, and Jaivir Singh’s article on Labour Laws and Special Economic Zones.

A little more about that last piece. The common wisdom is that we need to reform our labour laws to make life easier for our companies. The theory is that if employers know that they can lay off workers without getting mired in red tape, they will be more willing to hire workers.  Now, many people argue that labour inflexibility is not actually much of a burden on employers and that they get around restrictions by hiring contract labour or by “persuading” labour inspectors to be more flexible.

Labour laws do hamper employers when the workers have lots of market power anyway and there are strong unions, as was the case in the Bombay of the 60s and 70s, but when companies set up textile mills in remote areas of Tamil Nadu and Gujarat where employment is scarce and the low wages they offer are still better than the alternatives, they are pretty much useless. In other words, labour laws are ineffective precisely where they could be of use to Labour.

Jaivir Singh points out that instead of changing the law to provide a little more flexibility to employers, opposition to the relaxation   has forced government to adopt a subterfuge wherein they are ignored almost entirely within SEZs. Incidentally, Aadisht’s article is also about why India’s preferred mode of corruption is one where industries buy lax enforcement of the law, rather than lobbying to have laws changed.

The Dangers of Labeling

I was going to write a post on this today, but coincidentally, Wired’s piece on 100 Things Your Kids May Never Know About has “Toys actually being suitable for the under-3s” as one of those things.   The United States of America faces a dystopian future where no child under 3 will have a toy he or she can play with.

I got a taste of this future back in November, at a Toys R Us outlet in New York. I was searching for something to buy for my then 2 month old son to show people what we got from phoren. Sadly, the only thing that was available was some cuddly soft toy that hummed tunes when its tummy was pressed. Indian children at that age have rattles and other toys to play with, but not their American counterparts.

I am back in India, and my son is now a few months older. I have managed to find some toys for him, but attempts to buy high-end ones usually fail. Companies like Fisher-Price attempt to follow the same standard for labeling toys as they do in the US, and sadly this means that any interesting toy is labeled “Not suitable for children under 3”, because apparently those toys invariably have small parts that cause a choking hazard.

We were planning to buy an inflatable rubber tub to pour water into and let him splash about. Just as I took out my credit card, we saw the choking hazard warning. It took some detective work, but we finally figured out that the small part in question was the lid covering the inlet for air.  The lid was attached to the tub, and it was exceedingly unlikely that a child would swallow it. In any case, responsible parents who will let 6 month old kids play in water will watch over them all the time. The warning label was obviously intended, not to protect children from choking, but manufacturers from lawsuits.

The danger from this defensive labeling is that either children will be left with no toys to play with, or parents, inundated with too many pointless warnings will start ignoring them, and some will also ignore real hazards.

The Politics of Reservations

In the  July 2009 Pragati, you can find my article on the politics of reservations.
Whenever supporters of reservations have to make the case for extending reservations for another 10 years, they are faced with a dilemma. If they admit that reservations have achieved their goal, then why do they want them extended? And if they admit that they have not achieved their goal, then why are they persisting with a failed policy for over 60 years? The generally accepted solution to this is to claim that reservations have had some effect, and the policy would be even more effective if it had been properly implemented, and for that they need to extend reservations in time and scope.  This is what I meant when I compared reservations to Yossarian’s liver in Catch-22 – if doctors can confirm that it is a disease, they would have to treat it. If they pronounce him cured, they would have to discharge him. Because the problem was invariably in between, Yossarian could stay indefinitely in hospital.

Here, I would like to respond to some points that were made by Anubhav Agarwal, who made these points as twitter replies. The points here have been edited for readability:
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