Saturday, August 18, 2012

India's Northeast Conflict - Just Playing By The Rules


India's founding fathers, Nehru, Ambedkar and Gandhi, might have had differing visions for India's future, but there was no doubt that they all wanted it to be a modern egalitarian place that could finally break free from centuries of feudalism, tribalism, and finally colonialism. This core group, and by extension, the drafters of the young republic's new constitution, genuinely believed that if they installed a system of Proportional Representation, then all of India’s different ethnic groups would get a say in Parliament, and that none would get marginalized in the political process.

In 1951, the new Republic of India adopted a system of Proportional Representation that would result in a parliament - of about 550 locally elected parliamentarians - reflecting the demographic makeup of India. The system did not propose national elections for any leaders.

Fast forward to 2012, and Indian parliament is made up of dozens of political parties with none holding a clear majority. Shaky coalition governments are repeatedly held hostage by small political parties threatening to withdraw support. As the system did not put in place national elections, there is no leader with enough national political support to balance this abuse.  

Aspiring Indian politicians have realized that the easiest way to get elected is not as a champion of national interests, but to be seen as a champion of local rights. One simply has to identify a large enough voting bloc, preferably poor, semi-literate and disillusioned, and start championing for their rights. It doesn’t matter how fiscally illogical those demands may be on a national level, or just plain morally abhorrent on a human level, as long as the semi-literate voting bloc is convinced that those demands are beneficial to them, they will vote you into parliament. And a spot in parliament is the ultimate goal - when the real bargaining for money begins, as seen in India's US$ 32 billion telecom scandal.


The entire system consistently rewards leaders who appeal to ever-narrower sections of society. And if such a sub-group voting bloc does not exist, then one is carved up by them.  Local Indian politicians continue to undermine national interests by offering ever increasing incentives (such as larger percentages of hiring and promotions to caste based vote banks) to ever smaller niche groups. India’s parliamentary democracy consistently rewards such dividers at the ballot, and once elected, rewards them again at the nation's coffers.  

And thats what this entire Bodo-Muslim conflict is all about. Its the only way to grab power in a game whose rules were set in 1951.  

Worse, the system seems destined to degenerate over time, as any semblance of political success immediately leads to copycat behavior. The Bodo separatist movement took its cues directly from the successful separation of Jharkhand stae in 2000. It logically follows that now India holds the dubious distinction of having the largest number of active separatist movements of any country in the world. 
  
Local political success - no matter how it is achieved - is also rewarded by national leaders. In late 2007, these leaders watched in silence as Narendra Modi ran for the Gujarat elections on a blatantly right-wing platform. The fact that he presided over communal riots in 2002 that killed over 3000 Muslims was overlooked while he was invited to Delhi by the BJP party elite to help formulate strategy for the 2009 national parliamentary elections. Not only is he now formulating national strategy, there are hundreds of other small-time politicians aspiring to be just like him. 

The scene playing out in Assam is no different; warring factions are engaging in the only power grab allowed by India's political system. The system punishes national leaders who move to stop this violence (by the withdrawl of parliamentary support by either the faction and/or its sympathizers), and rewards those who wait (with parliamentary support when the dust settles and the winner enters parliament). 

The political game set in motion in 1951, by some men who were long on idealism but short on vision, continues its grim downward spiral; thousands die, hundreds of thousands are rendered homeless, violence increases, separatist movements increase in number and intensity. 

Coming Soon: Why are the Police not protecting common citizens?

Monday, August 13, 2012

Why is India's Olympic Output so Dismal? The Student Perspective


At the 2012 Summery Olympics, India won 4 bronze medals, 2 silver, and zero gold. How can 20% of humanity win barely 0.003% of its Summer Olympic medals?

For most of modern Olympic history, the excuse given was that India was poor and undernourished; although poorer countries were/are faring better. Now, with a booming economy and an emerging middle class, many with first world problems, new fallacies have emerged. 

The NYT India Blog claims claims that is a cultural issue "School-age children are encouraged to study hard, and parents often see sports as an unwanted intrusion on academics".

Actually, school-age children in India are encouraged to study hard, but the extra pressure is a consequence of other problems in India's higher education. - a result of of generations of bad policies.

First, decades of bad policies have ensured that there simply aren't enough university seats to go around. About 8 million students appear for university entrance exams, while about 3 million actually enter college; both numbers shockingly low for a billion+ strong nation.  Each state's education boards have mandated varying percentages of seats, even at private universities, to be reserved for the underprivileged classes. While the long-term performance degradation resulting from such a system deserve another in-depth exploration, the immediate result is that there are simply less seats available in the open education market.  Pre-university students are forced to attend remedial classes to try and get into the choice colleges. This dual system - official classes plus remedial classes - doubles the effort for the same output, effectively halving productivity. Entire generations of young students do not attend regular day classes and hang around waiting for their tenured teachers to leave their official jobs and start evening private remedial classes

Also, students spend many hours a day commuting. Schools in India are not funded by local taxes, and as such there is no physical co-relation between the student's residence and the school he/she attends. In urban areas, before the adult regular rush hour begins, there is another rush hour - school children being hauled from all points in the city to all points in the city, with no manageable patterns of transit.

These combined losses of time and productivity of an entire nation’s youth has significant negative consequences - one of them being low athletic participation that leads to low Olympic turnout.  

Second, price ceilings enacted in the name of the poor have prevented high schools, junior colleges and universities from charging enough fees to build world-class athletic facilities. The resulting economic surplus (difference between a higher price that the customer is willing to pay and the low price that the colleges are forced to charge) has been captured by remedial tuition classes that can, and do, charge high fees, but have no economic incentive to offer athletic facilities. India's heritage educational institutions fade into ruin while modern high-tech remedial classes rise next door.

Another fallacy being circulated is that India doesnt have the money that China's state-run program does, or America's private programs such as the NCAA do. Of course, the prevailing argument goes that developing India could never afford to do what these organizations do Its apparently the lack of money that keeps India from winning at the Olympics.

But hang on, the money is there - A 2009 report by ASSOCHAM estimated that US$ 10 billion outflow is caused by the 500,000 Indian students that go abroad each year due to capacity constraints in India. This economic surplus, that could have paid for athletic facilities in India, amongst other things, is instead captured by other countries. Since 2001, India has been the largest source of foreign students in American colleges, reaching an all-time high of 103,260 in 2009. The same is true for the UK and Australia.

India's education policies have resulted in a system that does the opposite - it actually discourages institutions from investing in sports facilities and dis-incentivizes students from participating in athletic pursuits. Set in motion in the 1950s, these policies have resulted in consequences that have been accepted as "culture" by generations of Indians. This is as much a part of Indian culture as driving beat-up old Chevys is a part of Cuban culture; both are systemic reactions to bad policies, but practiced for so long that no one can remember any other way of life.
 

Why is India's Olympic Output so Dismal? The Governance Perspective


Most modern countries seem to be able to govern themselves effectively enough with about 15-20 ministries; the US has 15 Departments, the UK has 19 Ministries, and France has 15. Modern India has given new meaning to the term ‘bloated bureaucracy’ with an astoundingly unnecessary 55 Ministries and Departments. 

In India’s parliamentary democracy, members of parliament are elected by proportional representation. From that pool of parliamentarians chosen by the demos, the Prime Minister is supposed to select his Cabinet; the elite group that is most qualified to head the respective key ministries and set the direction of the country. Original intentions were perhaps noble, but over time, India’s Political Patronage Pyramid has distorted the cabinet system to levels that defy comprehension. 

With no clear majorities in India's proportional representation parliamentary system (as opposed to winner-take-all systems like the US Congress) shaky coalition governments are the norm. Leading parties are increasingly held hostage by small political parties threatening to withdraw their support. Upward accountability is long gone; instead, this 'hostage crisis' has lead to bureaucratic bloat.  First a Directorate is created to accommodate some minor political party, which is then upgraded to a Department as the demands grow, which then becomes a Ministry as the party gains regional clout. Instead of striving for administrative competency or economic efficiency, the Indian government is striving for increased political accommodation and patronage. 

Downward accountability is essentially non-existent, as most of the voting demos (the vital majority in any democracy) is too destitute to demand performance and too poor to not be swayed by vote-buying gimmicks.
 
As of 2012, India’s List of Ministries:

Ministry of Defense
Ministry of External Affairs
Ministry of Overseas Indian Affairs
Ministry of Rural Development
Ministry of Law & Justice
Ministry of Social Justice & Empowerment
Ministry of Agriculture
Ministry of Minority Affairs
Ministry of Tribal Affairs
Ministry of Finance
Ministry of Textiles
Ministry of Commerce and Industry
Ministry of Heavy Industries & Public Enterprises
Ministry of Shipping, Road Transport & Highways
Ministry of Railways
Ministry of Agro and Rural Industries
Ministry of Small-Scale Industries
Ministry of Mines
Ministry of Coal
Ministry of Youth Affairs & Sports
Ministry of Tourism & Culture
Ministry of Parliamentary Affairs
Ministry of Water Resources
Ministry of Human Resource Development (Department of Education & Literacy)
Ministry of Urban Development
Ministry of Steel
Ministry of Chemicals & Fertilizers
Ministry of Power
Ministry of New & Renewable Energy
Ministry of Information & Broadcasting
Ministry of Communication & Information Broadcasting
Ministry of Health & Family Welfare
Ministry of Earth Sciences
Ministry of Company Affairs
Ministry of Panchayati Raj
Ministry of Environment & Forests
Ministry of Development of North-Eastern region
Ministry of Home Affairs
Ministry of Personnel, Public Grievances & Pensions
Ministry of Planning
Ministry of Food & Public Distribution
Ministry of Consumer Affairs
Ministry of External Affairs
Ministry of Housing & Urban Poverty Alleviation
Ministry of Civil Aviation
Ministry of Statistics & Programme Implementation
Ministry of Labor & Employment
Ministry of Food Processing Industries

India’s parliamentary system, originally designed to give voice to its diverse populace, has now been distorted to give the greatest rent to those who can command and deliver the largest number of votes. A small regional party leader who commands barely a half dozen parliamentarians can demand choice portfolios and get them. Now, it is not the Prime Minister, but regional bosses – heads of regional Political Patronage Pyramids – who get to decide on the Cabinet ministers. Southern political Supremo Karunanidhi (who idolized Joseph Stalin so much that he named his son and successor after him) got the Telecom ministry and then got to decide who he sent in and how much money to steal (about $31 billion) from public coffers. No thought is given as to the suitability of that person to that role, nor is any ongoing performance assessment made or any feedback loops initiated. A ministry is given with the implicit understanding that large scale graft will occur and the Prime minister and his central government will look the other way as long as the shaky parliamentary coalition is supported.

The entire sham is repeated at every state and regional level. Smaller pyramids are created with no thought to experience or expertise in that sector. Parliamentary support is exchanged for a spot at the smorgasbord of India's bureacracy. With votes as the currency of this eco-system, it remains vital to permanently sustain large enough numbers of voters destitute enough to be easily bought. Democracy fails in its core corrective function.

In the ensuing feeding frenzy, outcomes that have steadily degenerated over the last 60 years; most ministries that oversee public welfare are doing far more damage by functioning than they would do by ceasing to exist. The Ministry of Housing & Urban Poverty Alleviation, in its 2007 report to Parliament, declared that it assisted a grand total of 469 poor people in the three years between 2003 and 2006.


India’s Ministry of Youth Affairs and Sports has overseen a complete collapse of sport in the country. Indian Men’s Field Hockey, Gold medal winners at the 1952 Helsinki Olympics, failed to even qualify for the 2008 Beijing Olympics. At the 2008 Summer Olympics, India, 20% of humanity, earned only 3 medals out of a total 958. At the 2012 Summery Olympics, India won 4 bronze medals, 2 silver, and zero gold.

Sunday, August 12, 2012

India's Education System - The End Justifies the Means

Around July every, the results of India's HSC examinations are announced. The results of these university entrance exams dictate the futures of most Indians. The top scoring students are felicitated by the media, are offered choice scholarships by India's top universities, and many end up at the America's leading universities.

Before the keys to the kingdom are handed over to these "Board toppers," perhaps we should question the process that pushes them to the top.

India's State Education Boards are the clearinghouse for all university level admissions, which are based purely on the results of those final exams. No points are given to any other extra-curricular pursuits, or more importantly for even attending classes during the school year. The most glaring problem lies in the socialist era law that enables State Boards to set a ceiling on school fees, supposedly to protect the poor. Since the ceiling is far lower than the market equilibrium price, all schools and junior colleges (11th and 12th grade) are forced to economize. Student-teacher ratios suffer, quality of teaching suffers, facilities suffer, and eventually all education suffers.

This low price ceiling creates a quality gap that is immediately fulfilled by remedial ‘tuition classes’. Such private after-school classes do not come under the jurisdiction of any School Board and thus are only answerable to the free market. They can charge any fees they want, however the market demands that these charges are justified by the results that they deliver year after year. This might be free market transparency and accountability at its finest, but the end results are creating massive distortions in India’s education system.

These private coaching classes that started off as remedial service-providers have now ballooned into institutions larger and far better than the schools they were originally supposed to supplement. Sparkling clean classrooms, some even air-conditioned, low student-teacher ratios, personalized attention, 24-hour libraries and reading rooms. They offer clean, safe, environments conducive to learning, the very opposite to the chaos that most Indian schools and junior colleges offer.

The entire incentive system gets progressively perverted. Most pre-university students barely attend regular classes but concentrate on their private coaching classes. Repeatedly encountering such widespread institutionalized apathy, teachers inevitably lose their enthusiasm for teaching. Most coach private classes on the side, which are a far more lucrative source of income. The teacher’s primary day job becomes simply a platform to advertise for, and to garner credibility for, their evening private coaching classes. This self-perpetuating cycle continues; Students know about teacher apathy and skip more college classes to attend private tuition classes. India’s heritage institutions of learning fall into disrepair while shiny new coaching classes come up next door. The vicious vortex continues its downward spiral. 

Meanwhile, the ‘coaching classes’ industry, like any other industry, turns out its own high-performing classes and low-performing classes. So great is the rush for getting into the ‘higher-results-delivering’ classes that a third level of private classes have sprung up to coach students to get into the second level. Private remedial classes to help students get into the elite private remedial classes that are making up for stifled education systems. It cannot possibly get any more absurd than that.  

Entire generations of young pre-university students do not attend regular day classes and hang around waiting for their tenured teachers to leave their official jobs and start evening private remedial classes. This doubles the time spent for the same output, effectively halving productivity.  This enormous loss of time and productivity of an entire nation’s youth has enormous social consequences. For example, despite having the world’s largest student population, India produces almost no international caliber student athletes. India’s Olympic medal tally has steadily decreased over time. 2008 Olympics medal totals – China: 100, USA: 110, India: 3.

This entire description might lead one to believe that the academic content of Indian syllabii is of an extremely difficult nature. On the contrary, most of it is quite basic and often repetitive, and encourages rote learning instead of rewarding originality and creativity. Even if students were after the genuine pursuit of knowledge, the very nature of this systems forces them into looking for the ‘formula’ for cracking entrance examinations to get into scarce colleges. This is precisely the highly sought after service that private remedial classes provide. These classes provide reams of pre-written answers to examination questions – for all subjects, even languages and liberal arts – that students are supposed to memorize and regurgitate.

Official textbooks are supplemented by privately published ‘Guides’ that are full of pre-written answers to examination questions. A “good student” is someone that has spent hundreds of hours re-transcribing these guides by hand. As such, not only is the concept of ‘plagiarism’ absent from the lexicon and alien to most, there is institutional and societal encouragement of it; India’s “best” students are those who best able to plagiarize entire exam solutions from memory.

Around July every year, when the results of university entrance exams are announced, these “top students” become minor celebrities – their pictures adorn the front pages of all newspapers, their remedial classes offer them cash rewards, and so on. Little boys and girls across the country dream to grow up and excel at similar plagiarism one day.  

This system, set in motion in the 1950s with perhaps the best of intentions, has now led to the creation of a nation whose educated classes were taught during their formative years that the “end justifies the means’. Now, sixty years and about four generations later, this view has become the 'De facto' lens for viewing all aspects of life.   

This immense apathy spreads to other spheres of life, resulting in the eradication of a questioning citizenry that is vital to any democracy. This is where the fabric of Indian society begins to rip apart.    

Tuesday, August 7, 2012

Why India keeps 100 Million People in Slums and 78 Million Homeless?


As of early 2012, depending on your source of data, India had between 90 million and 200 million slumdwellers. 50% of New Delhi's population and about 60% of Mumbai's lived in slums. Although  the Indian economy grew in size over the previous decade, the total number of slumdwellers did not decrease. On the contrary, more were packed into the same space. In other words, life for a majority of urban Indians steadily worsened over the last decade.

None of this was news to any slum-dweller. Even the most gainfully employed amongst them just accepted it as fate. No one ever asked him –or people like him – if he wanted a simple apartment of his own someday. No matter how hard he worked, he knew that owning his own place was an unattainable dream in this lifetime. Over time, he had come to believe the same fallacies that were being repeated by everyone else; “it’s the high population,” “is all those poor villagers coming to the cities,” and “India doesn’t have enough land.”

As for the rest, Property in India has been turned into a zero-sum game. As demand continues to increase while supply is choked off, property prices keep rising. The rich buy prime property as first and second homes (as profitable investments), pushing out the lower classes. These second homes are not rented out due to a fear of tenant-squatters (covered here), and since prices keep rising, the illusion of capital gains negates any economic need to rent them out. The middle classes cannot rent these second homes from the upper classes and thus cannot move out of their starter homes. Meanwhile, those used starter homes that could have provided housing to the lower middle classes remain unavailable. And this chain of denial continues downward along India's socio-economic ladder. Multiply this by 300 million urban Indians and one begins to get an idea of the enormity of the problem.

But why arent elected leaders taking steps to alleviate the property shortage? Why dont they simply repeal these policies that restrict supply (outlined here)?

The property business is highly unique; the value of its product is derived from its relative scarcity; and it is the best place to park ill-gotten gains. As India opened up its economy in 1992, property developers began to increasingly rely on politicians - to ensure that supply was artificially choked, and as a source of funds.Within a decade the distinction between a politician and a property developer was already blurred, with most of India's ill-gotten gains invested into property.

Any increases in property supply now (by repealing the policies I outlined here) would lower property prices and result in immediate personal losses for these regional and middle-level politicians. And in India's Political Patronage Pyramid (outlined here), the middle level politicians almost always get what they want from their national leaders.

In 2010, it was revealed that Mumbai's leading politicians were usurping prime property allocated to war widows.

In other words, in order to keep their middle-level politicians happy, India's national leaders are willing to look the other way while about 200 million Indians live in slums, and another 100 million are homeless.



Peruvian economist Hernando De Soto has conducted substantial research to prove that that poor people worldwide are helpless without formal property rights. His findings are summarized in his book The Mystery of Capital. (De Soto, 2000)

India's land shortage myth - HOW India keeps 78 million people homeless

“The idea that land is fixed in amount is really based on an error which one encounters in economic discussions with wearisome frequency,” wrote American economist John Bates Clark in his 1899 book, The Distribution of Income. Although the supply of land on Earth is indeed fixed, supply of usable floor-space is virtually limitless with modern high-rises, elevators and construction technology.

Yet, in spite of this limitless supply that has been humanly attainable for more than a century, India managed to keep about 80 million people homeless. Here is how it is done:

1. Floor Space Index: In 2010, commercial rent in downtown Mumbai was  higher than commercial rent in midtown Manhattan. Apparently, commercial property was almost impossible to come by in Mumbai.

Demand was ahead of Supply they said. The Times of India called India the main driver of growth in Asia’s property market. Apparently, everyone took the prices as a sign of wealth and progress, ignoring the significantly higher salaries and better indicators of human development in New York, Hong Kong or Singapore. I, however, saw this as Supply being choked off by misguided policies, which resulted in prices that were artificially high.

The most effective of these choking instruments was India’s FSI policy.  FSI, or Floor Space Index, is the ratio between the build-up area allowed and the plot area available. So, if the FSI is 1, then a 100sq m plot can only have 100sq m of buildup area. With setbacks and common spaces, builders usually managed to squeeze out a few extra floors.  Most Indian cities have FSIs fixed in between 0.4 to 1.0. In Mumbai, FSI was fixed at 1.33 for decades. Worldwide, in cities where the topography constrains land supply, planners compensate by increasing the height of buildings. Thus they are able to provide their citizens with more living and working areas. That is why island cities like Hong Kong, New York, and Singapore, and to a certain extent Chicago have tall skyscrapers while London, Paris, LA, generally do not. Most of these cities have FSI in the 10+ range – New York City’s average FSI is about 12 –with incremental increases every few years to accommodate growth.

Mumbai had the dubious distinction of being the only major city in the world to do the complete opposite; start with a low FSI and then lower it even further. Mumbai had steadily decreased its FSI; In 1964 it was 4.5 in Nariman Point while in 2006 it was between 1.00 and 1.33 over most of the island. Hence, any redevelopment would result in a loss of floor space, which immediately scuttled any thought of such changes. This explained the mystery why thriving businesses operated out of Mumbai’s many drab old buildings.

This policy also explained the exorbitant rents. Rent wasn’t high because demand was ahead of supply, as everyone thought. It was in fact the complete opposite. Demand was healthy and normal, and supply was artificially suppressed. Reduce supply in the face of increased demand and just watch the equilibrium price rise. It was in any basic economics textbook.

This arcane FSI law is the reason why most Indian city centers have nothing taller than 5-story buildings. The few high-rises that were coming up were because of a newly introduced market in Tradable Development Rights (TDRs), where developers could buy and sell unused FSI (over single-story shanty towns for example). Not only was that nothing but a legalized racket in controlling extra FSI, it suddenly gave enormous power to slumlords, who could then trade that unused airspace over the heads of all the slum dwellers for cash. Even with this loophole, Mumbai's FSI was capped at 4.0., with tragic consequences in a city of more than 17 million people. 

Strangely, most of educated India seemed to subscribe to the misguided myth that high-rises would result in increased congestion on the streets. On the contrary, high-rises increase the space available per human and, when combined with efficient transit engineering and planning, result in decreased vehicle density. High rises in the Central Business District (CBD) of any city enable city planners to create hub-and-spoke systems for efficient mass transit to-from outlying suburbia. As India boomed in the last decade, the opposite had occurred; CBDs were stuck with old low-rises while suburbs (with lax FSI rules) ended up with commercial and residential high-rises.

A simple increase in FSI would create more living space. It would also result in the redevelopment of obsolete buildings into safer, more efficient structures. None of this is revolutionary; all of the above have been achieved in Hong Kong, Singapore, and Tokyo with far higher population densities than Mumbai. It would simply provide Mumbai’s millions a decent place to live, work and play.

2. The Rent Control Act of 1942: India’s Tenant Act of 1942 made it illegal to evict any tenant. This WWII era pro-tenant act made it virtually impossible for a landlord to legally evict any tenant. In addition, it made illegal for a landlord to raise rent, irrespective of any details in the actual tenancy contract. 

Hence, in 2012, millions of middle class tenants – often educated and employed in white collar sectors – were legally squatting on prime real estate in urban India while paying miniscule rents from four decades ago. Ironically, the tenancy act was clear on the landlord’s ownership of the building, making it illegal for the tenant to make any physical changes to it. Since it wasn’t cost-effective for the landlord to make any improvements, and the tenants weren’t allowed to, countless buildings in downtown areas were lying in squalid disrepair. It wasn’t poverty that was making Mumbai look the way it did, but policies enacted by its leaders. But no one seemed to notice, as the Indian economy was supposed to be booming, and money was supposed to magically fix all these problems.  Shiny new malls were supposed to be like some grand benevolent bacteria that would slowly spread its clean, new efficiency across India’s urban chaos.

Although some loopholes did exist in the system – such as 11-month leases – the Tenant Act created a very real fear of tenant squatters that ensured that a majority of surplus property, bought as investments, was being kept out of the rental market. Compare that to major cities like Hong Kong, New York, or London where many respectable professionals are also landlords, making a profitable business from renting out their extra properties to tenants. These mutually beneficial free-market relationships are the foundation of any urban housing policy; providing a steady supply of housing at multiple price points to diverse sections of society – young students, starter households, transitional workers – who do not want to buy housing. The problem was exacerbated by the fact that Indian courts were backlogged for 10-15 years, with 24 million cases pending nationwide as of 2007.

Thus, India’s rent control policies continued to keep old rents unrealistically low, legalized squatting on private property, and pushed new rents stratospherically high. I visited a building where the asking rent for an apartment was US$ 2500 a month, while tenants in the identical apartment below were paying US$ 2.50 a month. Apparently someone’s grandfather had signed a lease a few decades ago. Equilibrium prices separated by a multiple of 1000? A simple Supply and Demand graph would show that the market equilibrium price should be US$1250 a month – closer to what I willing to pay.

‘Tenant-squatters’ in urban India were almost always middle class, educated and gainfully employed, squatting on constructed property with clear titles. In other words, the law of the land was enabling squatting by the very socio-economic class that needed it the least.

Ironically, poor slum dwellers couldn’t become tenant-squatters for two reasons; no building landlord would sign a lease with them and with slums beyond the reach of justice, no slumlord would let them become squatters within the slums without something in return.  

Scrapping this rent-control policy would bring all rents to free-market equilibrium and free up old property for rebuilding. Yes, if rent controls were repealed, rents would rise in the short-term. But, as a result, the rental housing business would become immediately profitable. High prices would not last in a free property market: Entrepreneurs would rush in with increased investment for this higher rate of profit, resulting in an increased supply of rental housing. Eventually, the profitability of rental housing would be no more profitable than industry in general. Hence, the long-term effect of the repeal of rent controls would be a desperately needed increase in the supply of rental housing. Increased supply of rental housing – of all price levels – is vital for those that cannot afford to buy housing and would significantly decrease the endemic congestion and squalor of Indian cities.
Without a free property market, the benefits of India’s much touted economic liberalization weren’t trickling down to the poorer masses. These draconian policies had combined to create a zero sum game where poorer households faced a constant reduction in their affordable living space since they could never compete with the increased consumption of richer households in a market with finite supply. 

Ironically, since supply of legitimate property was choked off and rent was high, extra demand from gainfully employed citizens spilled over into illegitimate property – the slums. Inevitably, rent in these slums wasn’t cheap. Again, India’s poorest were hurt the most by India’s property laws.
Of the 60% of Mumbai’s population of 17 million that lived in squalid slums, barely 25% were officially considered poor. Simple arithmetic suggests that at least 35% could afford to pay for decent housing if it were available at a reasonable price. With the gainfully employed blue-collar workers forced to live in slums, the truly abject poor had nowhere to go but the streets.

These were people like Subhash, one of the many young men trying to sell stuff – bootleg DVDs, plastic cell-phone covers, pens, etc – at Mumbai’s traffic intersections. He described himself simply as “a sixteen year old from the North,” said, “I live under a flyover in Thane. I don’t want to beg, but it is difficult to find work, as people ask me, where are you from? With no home, they think I will steal and run away, and they cannot find me. How can I get eat if I don’t work? I don’t want to beg, but it is really difficult to sleep on an empty stomach.” Starker images are but a quick search away on Flickr. The city of Mumbai alone has about 300,000 ‘pavement-dwellers’ like Subash, who don’t even have a slum to call home.

For these homeless (or rather shanty-less), estimated by the 2001 national census to amount to almost 8 million Indians, Government response is equal to indifference; In Delhi 100,000 homeless people fight over access to night shelters with a total capacity of 2,937.
3. The Urban Land Ceiling Act of 1976: "To provide for the imposition of a ceiling on vacant land in urban agglomerations, for the acquisition of such land in excess of the ceiling limit, to regulate the construction of buildings on such land and for matters connected therewith, with a view to preventing the concentration of urban land in the hands of a few persons and speculation and profiteering therein and with a view to bringing about an equitable distribution of land in urban agglomerations to subserve the common good."
This act essentially barred development on large tracts of urban land. Although the act had been repealed by a few states such as Gujarat and Maharashtra, land purchased under the provisions of this act continued to lie vacant by 2012. 
 
4. The Coastal Regulations Zone Notification of 1991: This act had banned all construction within 500 meters inland of the High Tide Line. This effectively eliminated the possibility of building any new seafront structure. The original intention might have resulted in beautifully restored colonial buildings a la Singapore, but did not work in Mumbai in the absence of a free property market. 

Waterfront real estate is highly prized in cities like Hong Kong, New York, Singapore, and Chicago. Yet in Mumbai, it remains drab and undeveloped; out of the hands of developers whose projects would ease the housing problem, and; beyond the budgets of architecture buffs that would restore them to their former glory.  These two laws not only left the city with a seafront of dingy, old 4-storey structures, but it has also deprived housing opportunities to many.
Consequences: Most built-up property in India’s urban centers was either held by tenant-squatters or locked up in tenant-landlord legal battles. There was no churn, there was no healthy renewal. Availability of property, instead of being based on free market forces, instead depends upon a combination of luck and the agreements that one’s ancestors entered into decades ago.

All location decisions, commercial, residential, or any other, were based upon the above irrational factors. With such policies restricting free choice – with regards to being able to live where one works, plays, studies, etc. – every Indian city had become a mass of humanity moving from all directions to all directions at all points in time. The end result was an urban dystopia where traffic and mass transit had attained a level of chaos that was unseen and unprecedented anywhere on the planet. This uniquely Indian phenomenon was often misconstrued by Indians to be a by-product of the immense population, and by foreign journalists (like the New York Times’ Nicholas Kristof) as “teeming India”. In reality, most Indian cities – including Mumbai, Delhi and Calcutta – are less populous than New York or Tokyo and have far fewer vehicles, yet appear to be far more densely inhabited.
 
In other words, it’s always rush hour in urban India.  Internationally, rush hour in any major metropolis involves heavy traffic moving from the residential areas into the commercial areas in the morning and returning in the evening. This makes it easier to predict movement patterns and to plan and build effective roads and mass transit systems. In India, with property laws skewing housing patterns, and the resulting human traffic moving from every point towards every point, it is impossible to predict human movement patterns and attempts at providing mass transit become losing uphill battles.

Other unintended consequences were also undesirable. For example, I found out that, with old tenant-squatter rents kept unrealistically low, landowners of older buildings have to resort to other sources of income – such as massive billboards on their property. This has led to the strangely Indian phenomenon of billboards advertising the latest consumerist fantasy in sizes bigger than the old decrepit buildings that they covered. Views were barred, air/light circulation blocked, safety norms overlooked while landlords try to make their old properties viable. Tenant-squatters lose out yet again. No, this wasn’t an early indicator of growing consumerism in a newly-capitalist economy. It was simply the last resort for hapless property owners trying to find an income stream not controlled by anachronistic property laws.

India's Political Patronage Pyramid III - Present & Future


The Present
     The Political Patronage Pyramid is now the status quo in every political party. The rot is universal; spanning all party lines. India’s leftists spout dogmas straight from the Red Book, while their party middle-management steal from the PDS system. In FY 2006-2007, Rs. 1913.76 crore (US$ 500 million) of rice and wheat, about 63%, was stolen from the PDS system in West Bengal state alone; the bastion of India’s Leftist parties.[i]  The party elite look the other way while subsidized food and fuel meant for the poor is stolen and sold on the black market. The Congress has the National Rural Employment Guarantee Scheme (NREGS), enough said. The BJP has its Annapurna Yojna (Complete Food Program) claiming to subsidize food to the poor, Ladli Laxmi Yojana (Favorite child money goddess program) which creates a trust account in her name enabling her to receive Rs. 1 lakh (US$ 2500) when she turns 21. There’s the Gaon ki Beti Yojana (Daughter of the village program), Kanyadaan Yojana, Janani Suraksha Yojana, and so on. The only common theme running through all these programs is that the recipient group is the least empowered in society and hence least vocal in complaining about benefits that never materialize (as they are pocketed by the middle of the Pyramid).      
     Southern political parties pass bills in state parliament that use taxpayer money to give away free TVs, stoves and pressure cookers in exchange for votes. The bills pass unanimously, actual taxpayers are too small in number to have any say, and thousands of poor voters sweep back into power the party handing out the biggest freebie.
     With India’s parliament formed by Proportional Representation (PR), multiple political parties can form and grow. And grow they have, catering to ever narrower demographic niches; electoral results of the last few decades are showing the decline of national parties and the rise of fragmented local parties.
     In contrast, Winner-Takes-All (WTA) democratic systems almost always result in a small number of large national parties. Party lines are clearly drawn, with manifestos straying little from the national message, and voters often voting on party lines. A single politician’s behavior reflects on the entire party, regardless of geography. Politicians from one party are quick to point out the shortcomings, indiscretions, and misbehavior of any politician from the other party, regardless of geographical separation. Within the legislative body – the Senate or Congress in the U.S - this acts as a systemic self-enforcing peer group check against individual misbehavior. 
     Meanwhile, India’s PR democracy results in multiple smaller parties in the mix, where actions of one politician in one minor regional party do not reflect on the career prospects of another politician in another distant regional party. With so many different political ideologies, a politician from the southern coast gains nothing amongst his constituents by pointing out the shortcomings or indiscretions of a politician from the Northeast. Hence peer-review amongst India’s 552 parliamentarians is almost non-existent. Most dont even bother talking to each other.
     Development funds get stolen, medicine gets siphoned off to the black market, infrastructure funds are diverted, etc. There is no political incentive for any parliamentarian to stop it. Upper echelons of the pyramid have no moral authority anyway; that was lost a long time ago. Meanwhile, the police are shackled by The Police Act of 1861 and are powerless against elected politicians.

The Future of the Pyramid
     Now consider the future. The very nature of such a human pyramid renders it to be dynamic with the passage of time. As older leaders at the top of the pyramid eventually retire or die, they are replaced by those most qualified to lead the lower levels.  In other words, as time progresses, the lower levels of the pyramid filters its own and sends upwards those most likely to send rewards down.
     The churn is beginning to show now. When the Pyramid was first conceived by the Constitution planners in 1951, it consisted of India’s elite, highly educated professionals, mostly lawyers.
60 years later, most of the original pyramid is long gone. Amongst their descendants, the honest intellectuals have left in disgust. The few descendants that have chosen political careers have done so for utter lack of any other redeeming quality or employable skill. The apples have consistently fallen farther and farther away from the tree. The last wave of intellectuals is nearing the end of its tenure. Independent intellectuals face insurmountable barriers to entry, and end up choosing far more intellectually rewarding and morally fulfilling careers in the private sector. The pyramid is slowly de-generating from the bottom up.   
     The primary objective of a democracy is to serve as a gigantic filtration system. The basic assumption is that if every individual is free to vote, then the resulting filter will weed out the misfits, punish the bad, and reward the good. But this assumption is based upon multiple premises; that a majority of voters can access, read and understand election manifestos; have an education that equips them to coherently compare multiple manifestos; can comprehend causality; feel ownership in government by paying direct taxes; are willing and able to look beyond tribal, ethnic and sectarian lines, and aren’t living lives of such deprivation that their votes can be easily bought.
India’s corrupt leaders have created a failed state that ensures that these fundamental premises do not exist in the country. This is precisely why India’s parliamentary democracy is failing so miserably, and getting progressively worse.
     It doesn’t just end at graft and corruption. The higher-ups in the Pyramid also look the other way while the lower-downs indulge in criminal acts of escalating gravity. 22.5% of India’s 2004 Parliament had multiple criminal cases pending against them; cases of rape, extortion and murder. This percentage has been steadily increasing; up to 26% in the 2009 parliamentary elections.  Upper levels of the pyramid can stop the rot, but they choose not to. They can easily bar criminals from contesting elections, or refuse them party tickets in elections, but in their desperation for support in ever shakier coalitions, they choose not to.
     These thousands of Faustian pacts all over the country have enormous negative consequences on all levels of governance in India.  


[i] Nitin Sethi, “Our poor robbed of their food grain,” The Times of India, September 17, 2007.

India's Political Patronage Pyramid II - The Top


     On the next step up, these votes are bundled and sold up to the next level at a corresponding higher price – a larger opportunity for graft. Multiple city level politicians combine these vote bundles and sell them up to the Members of Legislative Assembly (MLAs) of each state.
     The same process is repeated during national parliamentary elections as local leaders sell these bundled votes to national party leaders in each constituency.  These transactions usually occur within party parameters, but it is not unusual for middle and lower level politicians to switch parties and take their entire vote banks with them. A greater opportunity for graft is always the catalyst for such party switches. Party ideology means nothing. The mere threat of a switch is often used as a bargaining tool by middle layers of the pyramid to extract more graft opportunities from the upper level decision-maker layers.  
     At every level of this pyramid, every politician sends choice public contracts down, and looks the other way as blatant graft occurs. In exchange he gets the votes from below, and far juicier public contracts from above. Of course, the contracts get bigger and the kickbacks juicier as one moves up the Pyramid. Every part of the Pyramid patiently waits for his turn to rise up within, each behaving far worse than his predecessor when he gets there. A majority of voters are too poor to care, too uneducated to understand, and too afraid to demand change. Most of the demos is essentially disenfranchised, and India’s democracy fails in its most basic role of correcting governance.    
     At the penultimate layer sit the heads of every major political party in India. Not only are these leaders well aware of how they got there, they are also constantly securing their positions by actively rewarding the pyramid below with massive opportunities for graft. The Rs. 12,000 Crore (US$ 3 Billion) National Rural Employment Guarantee Scheme (NREGS) is one perfect example. The bill was sanctioned by Parliament in 2007-08. National English daily The Indian Express reported in 2008 that it did not reach 96% of the households that it was supposed to.[i]
     There are thousands of such schemes. There is the Rs. 43,000 Crore (US$10 Billion) Jawaharlal Nehru National Urban Renewal Mission (JNNURM), which pays for the construction contracts of roads, bridges, and flyovers in urban India. Urban India is now full of flyovers, built at enormous expense, but offering questionable improvement. Such public contracts have historically been the most effective way to steal public money; leading to a distortion of fair competition, the waste of limited resources and the neglect of basic urban needs, perpetuating poverty. Massive market inefficiencies also arise from such corruption and lead to the destruction of development opportunities.
     As Indian democracy is built on the principle of proportional representation, the Political Patronage Pyramid is a byproduct of that system. It exists in every party, of every ideology, in every state. It is such an endemic part of the political landscape that most Indians have come to accept it blindly.
The ignorance argument – that the leader simply does not know – popular among India’s educate classes, is simply impossible. A political leader cannot go about his daily political life without being exposed to the pyramid in multiple ways. At this point we have two viable choices; the leader knows about the Pyramid and actively perpetuates it. Or the leader knows and does nothing about it. This is a classic Morton’s Fork; two equally unpleasant alternatives leading to the same undesirable outcome.


[i] Ravish Tiwari and Ganesh Pandey, “UPA Guaranteed 100 days of work, over 96% did not get it,” The Indian Express, January 6, 2008.

India's Political Patronage Pyramid I - The Base

Democracy works on the fundamental premise that voters select someone from within themselves and empower him to manage the government of all. The theory of “consent of the governed” essentially states that state power should be derived from the people over which that power is exercised.

Imagine a pyramid-like structure upwards if you may. At the very bottom of the pyramid are the congested urban slums in India’s vast oceans of poverty. Pick any urban slum, and you have the same conditions; tens of thousands of undernourished bodies packed into thousands of ramshackle tenements crisscrossed by black ribbons of clogged up open sewage and excrement. Thanks to India’s failed education systems, most slum dwellers are, if not illiterate, functionally illiterate.

In such a primal world, a strongman inevitably emerges. He controls all utilities – stolen water and electricity, pirated cable television, even internet – real estate, job opportunities and has a say in all small businesses. And if that wasn’t enough, this strongman holds the exclusive “monopoly on use of physical force” in that slum, usually expressed through occasional violent outbursts. In a place where justice does not enter, and contract enforcement is an illusion, such a strongman has enormous control over the daily lives of tens of thousands in his slum.  

While serfdom and debt bondage might be officially illegal in contemporary India, the dependency of these tenants is ensured through a mixture of social and economic ties. These ties form the basis of relationships between politically and economically powerful patrons and the weaker clients. Over time, with India’s glacial judicial system ensuring the lack of any viable legal alternative, vast sections of Indian society has deemed these relationships necessary and even honorable, rendering change almost impossible.  

With such god-like power, the strongman patron controls the most valuable commodity in India’s democracy – electoral votes. More important, these are controllable and predictable votes. They become the world’s most perfect vote banks; instantly mobilized. As such, when it comes to elections, these people are not free to vote for whoever they want to. The governed have been left with no consent to give.

This strongman then “sells” these guaranteed votes to the next step up in the Pyramid. Civic Corporators (city councilors) running for city elections “buy” these votes by sending choice city contracts to the slum strongman. The strongman gets to control, say garbage collection in a certain area, or a bus station maintenance contract. He can steal all the money he wants while delivering abysmal services, and the corporator ensures that the justice system will look the other way as long as the votes are delivered upwards.

This patronage pyramid affects everyone. For example, in most of urban India up to 25 percent of urban electricity and 30 percent of piped water is stolen by urban slumlords and offered to poor residents. These are the most effective instrument of buying the votes of these massive vote banks, and are thus far too important for local politicians to ignore. Hence the blatant theft is allowed to continue, and state-owned utility boards are prevented from launching corrective measures, improving safety or quality or delivery.

I am not saying that water or electricity should be taken away from the poor. I am saying that there is something deeply wrong with a system that keeps the poor in a constant limbo of deprivation and then uses the basic needs of life as currency to buy votes. Yes, political cronyism exists in many of the world’s developed democracies. However, in India, this cronyism escalates unchecked to epic proportions due to a lethal mix of three core realities; a majority of the demos are functionally illiterate, feel lesser sense of ownership in governance as they do not pay direct taxes (but do pay indirect taxes that they are unaware of), and live in controlled conditions that require them to surrender their votes. As a result, Indian democracy fails in its corrective role of preventing large-scale graft. 

Viewed in isolation each contract is quite small, but they combine to form the bottom layer of an enormous pyramid; consisting of tens of thousands of strongmen stealing from civic coffers across the country. It is vital to note that India is not a poor country, but it is a country with large numbers of poor people.  It is not for lack of money that these civic services are failing. The city of Mumbai’s 2007-08 budget was Rs, 10,225 crore (US$ 2 Billion), roughly double Tel Aviv’s US$ 1billion budget, yet there are rampant blackouts, endemic water shortages, mass transit resembles cattle transport, and road traffic is horrendous. Governance continues to worsen.

Such trends could be interpreted as “progress towards greater democratic identity and resemblance between governors and governed.” (Manin, 1997). However the end result in practice is that urban India’s face to the modern globalized world is shaped by policies determined locally by its least qualified and most thuggish.

The antics of these urban elected leaders are an endless source of humor in any of India’s urban media. The urban media is full of detailed accounts of fights over petty inaugurations, unnecessary foreign jaunts, naming of miniscule streets and public parks after themselves, speeches full of empty rhetoric and hubris, rampant graft and corruption. But there is nothing funny about how Indian democracy is enabling such inept leaders to run India’s glorious cities to the ground. Instead of being at the forefront of the nation’s push towards modernity, these cities are instead stuck in a time warp brought about by this form of democracy.

Rural votes are also delivered by similar strongmen that are best able to deliver freebies such as agricultural output price supports and input ceilings. Such blatant vote-chasing results in immense market distortions at the taxpayers’ expense; subsidized fertilizer results in overuse, free electricity results in gird overloads, free water lowers the water table, and so on. Indian rural conditions that are not much different from urban – illiteracy, functional illiteracy, low female empowerment, lack of the rule of law, and other consequences of failed public services – have converged to ensure that there is no collective outrage. Additionally, low to nonexistent sense of ownership in governance can be attributable mostly to non-payment of direct taxes. Elections occur but democracy fails in its most basic corrective role. The Pyramid’s rural bottom layer continues to send its most thuggish upwards.

India’s underdevelopment is often attributed to the stark quality shortage it faces in critical areas of public management – urban architects, city planners, ecologists, public health specialists, environmental engineers, and so on. By extending that argument, the international development community concludes that a mere transfer of these ‘technical skills’ to Indians would automatically result in development. But India’s Political Patronage Pyramid renders that argument null and void. India remains underdeveloped due to no other reason than the debased form of democracy practiced in the country.

EXAMPLE: Road works in India
Pune was the fastest growing city in India for the two years leading up to 2008. City roads were being widened, and flyovers were being built at a glacial pace that India called hectic. Be that as it may, they were being built, and they were being hailed as the harbingers of progress. The entire city seemed like one endless construction zone. 

I had been in cities experiencing construction booms, so the mess was expected. And good citizens were expected to be patient with the march of progress. “Working Towards a Better Tomorrow” announced endless panels covering construction sites of the Delhi Metro. But Pune construction seemed to take forever. A simple flyover built over the Pune university intersection took three years and cost Rs. 61 crore (US$ 12 million). A Bus Rapid Transit System (BRTS), meant to emulate Bogota’s success, took three years to build, and cost Rs. 1200 crore (US$ 240 million). In 2008, at the end of three years, the designated bus lanes were gone, the so-called rapid buses were crawling through regular traffic, and none of the other back-end systems worked. In other words, US$ 240 million disappeared into thin air, a few buses as the only residue left behind. Pune was not a poor city; it was a city with a majority of poor people.
    
Roads were constantly being built, but almost none finished up to the curb. In some of the older parts of the city, so many layers of asphalt had been laid on older roads that the street was up to 5 feet higher than the ground underneath surrounding buildings. Of course, come monsoon time, those buildings would be flooded, but citizens were conditioned to believe that flooding is a natural byproduct of the rain. “Even the best roads succumb to the strong Indian monsoon,” was a common theme I heard. Even Nabokov couldn’t have made this up.  I remembered that Hong Kong roads and drainage systems were so well-managed, that even tropical hurricanes would leave barely a puddle the day after. 
    
DJ, a former state boxing champion I met at the gym, explained all this to me, over a few rounds of bagwork. He had the broad droopy shoulders of a boxer, and drove a new Mituibishi Pajero SUV. He made his living as a contractor supplying construction materials to the Pune Municipal Corporation. Barely 27, he drove a better car than any middle aged lawyer, doctor, or IT professional that I had met in urban India.
    
Urban India was booming he explained, and tax intakes were skyrocketing. However, upto 60% of most cities still consisted of semi-literate poor living in slums. Voter turnout in most cities continued to be quite low, with the educated classes refraining from voting. Bangalore for example, India’s IT center, had 43% in the 2009 parliamentary elections, mostly from the slums. These slums constituted the most perfect vote banks – controllable, purchasable, and demanding almost no accountability after any election.
     
“How does all this tie in to road works?” I asked.
    
He was clearly a well-traveled man. “Anywhere in the world, road works have traditionally been the most vulnerable to graft. Even in the U.S., graft takes the form of campaign contributions, but it remains miniscule. In most countries, leaders refrain from stealing too much out of fear; perhaps fear of prison or even death in some theocracy, but most important is the fear of public humiliation and/or electoral defeat in a democracy.”
    
“But in India’s democracy, these elected leaders – their positions secured by poor vote-banks that demanded no accountability – were free to steal far more. So, while tax intakes from the IT sector were rising, and mega-projects were being lined up, the end results were abysmal.”    
    
I was speechless. “Are you telling me that the very structure of Indian democracy is the cause of bad roads? And things will continue to get worse?”  
    
“Yes. And yes.” he said with a shrug, a smile for me, and a vicious jab for the bag.
   
“Okay, well …” I wondered why he was telling me all this. “What if I wrote an article in the paper about this?” I suggested, with another smile and my best right cross to the bag.
    
“It would make no difference. Those majority vote-banks don’t read, and even if they did, come election time, new freebies will help them forget.”
    
Then, with a smile, he continued, “Speaking of election freebies, the Tamil Nadu state government is seeking bids for one million TV sets to be given out before the next election. You lived in Hong Kong. Got any friends that can get us cheap TVs from China? They dont even have to work longer than a few weeks ...”



[i] Max Weber, “Politics as a Vocation,” Duncker & Humboldt, Munich, 1919.