31 March 2010

The fight over land

ArcelorMittal, the world's biggest steel company, is having it tough finding land for its projects in India. This news item talks to the latest developments where the company has been negotiating with farmers successfully so far, the landowners have put up a list of 20 demands that the company has apparently agreed to. The news item is one of the few that explain why some landowners give up land and why others dont - the quality of land is an important issue here.
Jobs are what everyone is eyeing in Petarwar. “Our family will give land for the project. You can see this land, it does little to support our livelihood. If ArcelorMittal gives us jobs, we will all give land,” said Bindeswar Mahato, whose family has 30 acres.
And it’s not just for themselves. ArcelorMittal has agreed to support land losers for up to three generations, as part of a rehabilitation package being discussed with the land owners. Apart from employment, land losers will also get a pension till the plant becomes operational. Schools, colleges, hospitals, peripheral development are all being discussed.
An ArcelorMittal spokesperson says the company has held multiple discussions with landowners and residents of Petarwar. “This ongoing dialogue of exploring ways to address local needs and aspirations will help us devise a sustainable package for both sides,” he said.
Moreover, the people have been made to understand that they would not be losing land to the project. Lakhanlal Mahato said, “The land will belong to the company as long as the smoke comes out of the furnace in the plant. The day it stops, the land will be returned to us.” In other words, if the plant stops functioning the land would be returned to the people."
ArcelorMittal has learnt doing business in India the hard way. The company signed a memorandum of understanding (MoU) with the Jharkhand government in 2005, but land agitation prevented it from making any headway. The situation in Orissa is no better.
Why are residents here so willing to give up what their counterparts just 100 km away were not.
First, unlike Petwarwar, Khunti-Gumla is fertile with the double-crop and multi-crop land in places. Also, in Petarwar's case, proximity to the Bokaro steel city, 40 km away, would have also made the environment more conducive to industrialisation.
Even though 90 per cent of the people are willing land losers in Petarwar provided the company accepts their 20-point charter of demands, ArcelorMittal is taking a cautious approach. The company’s original land requirement was 11,000 acres. Now, the requirement in the first phase of six million tonnes is about 2,000 acres. “The plant will be built in phases,” the company spokesperson said.
That’s not to say that there is no resistance to the project. The project site covers essentially five villages : Kojram, Lukaiya, Jarwatar, Bendotar and Hanslata. Residents of Kojram, the smallest of the villages, are resisting the project.
They have strong support from tribal activist, Dayamani Barla, who spearheaded the agitation in Gumla. “The public meeting went off well for the company because it was attended by middlemen. The adivasis called me, for support,” said Barla.
Barla is not against development. “Around 8 million tribals have been displaced so far in Jharkhand, of which only 3-4 per cent has been rehabilitated.”
But it seems that ArcelorMittal has more people on its side, for now. If the company manages to bag 70 per cent of the land through direct purchase, then the Jharkhand government could step in to acquire the rest, says N N Sinha, industry secretary.
Still, in east India, land acquisition is an emotive issue and the tables can turn any moment.
Consider this: Bokaro Steel Plant’s (BSP’s) expansion to seven million tonnes is held up because people displaced from the 32,000 acres of land way back in the 1960s are demanding jobs. The number of displaced families has grown from 3,000 back then to 30,000 now. The steel plant has already accommodated 15,000, but the list is open-ended and the backing, more so. There are about 30 political groups representing them.
The industrial scenario is also a reflection of the states’ politics. Carved into a separate state in 2000, the state has had seven governments since then, making continuity in policy an impossible task. 

The piece says, land acquisition is an emotive issue, True, it's the life and blood of those who own it, but at the bottom of the conflict is the question of control over resources - water, forest, land - that drives the emotions...the struggle from the other side can be found in this blog, which isnt updated very often but still gives a good idea of the concerns of the tribal owners. 

In India, land is being acquired for industry, but in Africa, it is being taken away for food..by foreign investors, raising another set of issues. The FAO's report on International Land Deals is a comprehensive study and points out the key lacunae in these deals:

Virtually all the contracts analysed by this study tend to be strikingly short and simple compared to the economic reality of the transaction. Key issues like strengthening the mechanisms to monitor or enforce compliance with investor commitments, through monitoring and sanctioning, maximising government revenues and clarifying their distribution, promoting business models that maximise local benefit, as well as balancing food security concerns in both home and host countries are dealt with by vague provisions if at all. 

There are many recommendations to fix the concerns, e.g

innovative business models that promote local participation in economic activities may make even more
commercial sense. These include outgrower schemes, joint equity with local communities and local content requirements.

On many counts, the recommendations seem a set of ideals of attain, they should form a charter of sorts for all stakeholders. In the end, given the focus on returns in the short-term, as the FAO suggests, it is important that world bodies deliberate the implications of these deals for food security, human rights etc. The questions raised for African agriculture actually need to be addressed the world over, for instance, in India it is the clash between large industry and small land owners (last post on water, this one on land)..the closer we are to attaining some parts of the ideal, the better...

What should African agriculture look like in 30 years’ time? What place should large investment and smallholders play within that, and why? These basic questions should frame decision-making. Public deliberation is essential to ensure that this question is properly addressed and factored into choices between different options.

24 March 2010

Conflict and development

South Asia is the second most violent place in the world, after Iraq. Not just Afghanistan and Pakistan that are in the world news, but parts of India, Lanka and Nepal have been reeling under the impact of conflict for decades.
Ghani and Iyer present research on South Asia:
Given the inverse association between conflict and per capita income, we would expect that conflict rates should be much higher in lagging regions within countries – i.e. those regions that have lower per capita income compared to national average? Indeed, this is exactly what we find – conflict is concentrated in lagging regions within countries.
Lagging regions have experienced more than three times the number of terrorist incidents per capita, compared with leading regions, and almost twice as many deaths per head of population in such incidents.

Reducing conflict is a prerequisite to political stability, which, in turn, is the prerequisite for implementing pro-growth policies. Even in a best-case scenario, the presence of low-level conflict constrains the policies governments can implement to promote growth.
Policymakers in South Asia have tried various policies to reduce conflict. The most common approach to deal with insurgencies, terrorism, or internal violence is to use the police forces to establish law and order in the affected areas. The police forces in South Asian countries, however, tend to be understaffed and underequipped. In cases where police forces are insufficient, the armed forces are called in to deal with the insurgency. In most cases, this has not been a successful strategy. Even when these measures are successful in defeating the insurgents, as in Sri Lanka, the human cost associated with military operations is very high.
A different approach to dealing with insurgencies is to conduct negotiations and sign peace agreements with the insurgents. To be effective, this approach needs two conditions:
  1. the government must negotiate in a coordinated way and fulfil at least some of the insurgents’ demands; and
  2. the insurgent group must be genuinely interested in joining the political mainstream
 This approach has been tried in some areas of South Asia. For instance, the Indian government has signed peace deals with several separatist groups in the northeastern states, granting them a higher degree of local autonomy in some cases. Similarly, negotiations with some Tamil groups such as the EPRLF have resulted in their integration into mainstream politics.
At the same time as the security-based solution, there are economic solutions. These involve the government expanding welfare programmes to reduce poverty in the conflict-affected areas as a means to undercutting the support for the insurgency. This approach is consistent with economic backwardness as a cause of conflict and has been tried in some conflicts in South Asia, but it has failed because of poor choices of economic policies and poor implementation in conflict regions.

Connected to the above resolution of conflict is Amartya Sen's article in the Guardian

..take Steve Biko's remarks on "powerlessness" in the apartheid-based South Africa in the 1970s. "Powerlessness breeds," Biko said, "a race of beggars who smile at the enemy and swear at him in the sanctity of his toilet; who shout 'Baas' willingly during the day and call the white man a dog in their buses as they go home." If capability failure of any kind is a matter of concern, those related to people's inability to act freely or speak openly because of the power of others have special urgency. This is an important concern in the advancement of freedom and capability, since societies involve conflicts as well as togetherness and mutual support. The pursuit of justice in enhancing freedoms and capabilities in peoples' lives has to be alive to both.

There are no easy solutions, though the past has proven that change is possible. Read this piece in the paper today about an Indian army officer who went back to Manipur after 16 years, and met the militant who had shot him, and the girl he had rescued during the shoot out. The problems in Manipur are far from resolution but stories like this hold out some hope.

18 March 2010

Cola companies and groundwater

The Pepsi plant in Kerala has come under censure from the state government for 'overextraction' of ground water, the 'Panel Chairman and state Water Resources Minister N K Premachandran said the key suggestion was to impose restrictions on water extraction by Pepsi at 234,000 litres per day from the current average of 700,000 litres a day.' Palakkad district where the plant is located has been declared a drought-hit area this year.

While the spokesperson for Pepsi said that they were using innovative recycling and recharging techniques and had been able to save about 200 million litres of water in the last four years and has also brought down the water usage by 60 per cent, the point is that usage of groundwater by industrial units, especially for 'nonessential' uses is coming under scrutiny across the world,cola companies are the first to get struck.
In 2004 the Central Ground Water Board in Kaladera, Rajasthan, had held Coca Cola  responsible for depleting ground water level in the region.

As the report 'Watching Water' by JP Morgan put it,  'As water becomes more precious, companies’ real and perceived behavior with respect to water consumption and discharge is also likely to have greater consequences in the marketplace, with an increased risk of consumer backlash against companies judged to be profligate or irresponsible.

Rikki Stancich's article pointed out in 2008,
The need for water mapping and for companies to take the initiative on water management has arisen largely from failure on governments’ part to effectively price water.
But this is likely to change, says Jacob Tompkins, director of WaterWise. “At present, the price of water isn’t representative of its cost – the environmental damage associated with its extraction or its contamination. But the price of water will continue to go up, globally. There will be more regulation and we are likely to see the emergence of voluntary trading of water rights and pollution rights within the next decade,” he says.
In the UK, the Federation House Commitment, coordinated by the Food and Drink Federation, an industry organisation, and Envirowise, a government agency, aims to reduce the water consumption of participating companies by 20% by 2020 (compared to a 2007 baseline). Such schemes are creating a framework for future regulation, says Tompkins.
Water regulation moved up a gear in Australia earlier this year when the Council of Australian Government set the first ever sustainable cap on ground and surface water usage for the Murray-Darling Basin, a land area spanning over one million square kilometres and five jurisdictions. “It’s likely that the rest of the world will not be far behind Australia’s lead,” notes Mattison.

Cola companies will be picked up first as an example and will in all probability take up a lot of media attention; however, watch out for sweeping changes in the way the world uses water in the years ahead.

13 March 2010

Capital controls back in favour!

Well well, the IMF has reversed its policy on capital controls last month..read Dani Rodrik on Project Syndicate on this

In the world of economics and finance, revolutions occur rarely and are often detected only in hindsight. But what happened on February 19 can safely be called the end of an era in global finance.
On that day, the International Monetary Fund published a policy note that reversed its long-held position on capital controls. Taxes and other restrictions on capital inflows, the IMF’s economists wrote, can be helpful, and they constitute a “legitimate part” of policymakers’ toolkit.
Rediscovering the common sense that had strangely eluded the Fund for two decades, the report noted: “logic suggests that appropriately designed controls on capital inflows could usefully complement” other policies. As late as November of last year, IMF Managing Director Dominique Strauss-Kahn had thrown cold water on Brazil’s efforts to stem inflows of speculative “hot money,” and said that he would not recommend such controls “as a standard prescription.”

Copyright: Project Syndicate, 2010.
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This is a major shift in thinking. Rodrik points out that the combination of economists ideas and political power with the banks made finance lethal in the past. This is set to change, even though political power remains, the intellectual climate has changed significantly. 

09 March 2010

Earthquakes and governance

Suvrat's post bringing out the link between governance and earthquake impact talks of how building codes and safety regulations are routinely violated in India, making governance, especially at the municipal level a key variable in understanding disaster management.
Kaufman and Tessada's review of natural disasters and national diligence delves into this issue in depth:

Chile’s good governance played a significant role in limiting the death toll resulting from this earthquake. In particular, two dimensions of governance stand out—government effectiveness (the efficacy of the public sector), and control of corruption. Over the years, Chile’s effective institutions succeeded in designing and adopting better building codes, which have been periodically upgraded, to take into account previous earthquake experience, innovations in preventative technologies and the country’s growing wealth (made possible in part by good governance).
Equally noteworthy is that these building codes are enforced. The media has brought to international public knowledge a new high-rise that has collapsed in ConcepciĆ³n and an apartment building near Santiago that has been rendered inhabitable since it is leaning more than the Tower of Pisa. Notably though, these examples indicate that non-compliance with building codes (and possibly corruption) is likely individualized, rather than systemic. Naturally, there are many damaged structures, particularly (but not exclusively) those built long ago. Even though there are many people close to the epicenter who are now homeless, the overall stock of houses was not decimated and the number of fatalities due to buildings collapsing was limited. In fact, a very large portion of deaths resulted from the tsunami instead.

Undoubtedly, as with past earthquakes, lessons will be drawn from damage assessments and building codes will be improved; but overall the existing system did work. In contrast with the devastating effects that corruption in the construction sector had on the cities affected by the earthquakes in Turkey (where many new residential buildings collapsed) and China (where many schools full of pupils collapsed), the low levels of corruption in Chile, coupled with effective institutions, help explain why building codes were largely enforced.
ore broadly, empirical evidence, such as that presented by Kahn’s study on natural disasters (gated, ungated), suggests that among other factors, governance and corruption control are determinants of the death tolls A review of recent earthquakes, as shown in Table 1, and of the quality of governance (in terms of governance effectiveness and control of corruption) is also suggestive, as depicted in Chart 1.

See the article for more details.

03 March 2010

Award time again!

Real World Economics Review blog is calling for nominations for the Revere Award
The economics establishment has attempted to evade responsibility for the Global Financial Collapse by calling it an unpredictable, “Black Swan” event.  But in fact some non-neoclassical economists foresaw the crisis and warned the public of its approach. The Revere Award aims to give these economists the professional and public recognition that they deserve, to encourage others to utilize their methods, and to increase the likelihood that, for the benefit of humankind, empirically responsible economists will be listened to in the future

Greenspan, Friedman and Summers won the Dynamite Prize
Alan Greenspan has been judged the economist most responsible for causing the Global Financial Crisis. He and 2nd and 3rd place finishers Milton Friedman and Larry Summers, have won the first–and hopefully last—Dynamite Prize in Economics.
They have been judged to be the three economists most responsible for the Global Financial Crisis. More figuratively, they are the three economists most responsible for blowing up the global economy.
Most than 7,500 people voted—most of whom were economists themselves from the 11,000 subscribers to the real-world economics review. With a maximum of three votes per voter, a total of 18,531 votes were cast.  The poll was conducted by PollDaddy. Cookies were used to prevent repeat voting.
Dynamite Prize Citations  
Alan Greenspan (5,061 votes): As Chairman of the Federal Reserve System from 1987 to 2006, Alan Greenspan both led the over expansion of money and credit that created the bubble that burst and aggressively promoted the view that financial markets are naturally efficient and in no need of regulation.
Milton Friedman (3,349 votes): Friedman propagated the delusion, through his misunderstanding of the scientific method, that an economy can be accurately modeled using counterfactual propositions about its nature. This, together with his simplistic model of money, encouraged the development of fantasy-based theories of economics and finance that facilitated the Global Financial Collapse.
Larry Summers (3,023 votes):  As US Secretary of the Treasury (formerly an economist at Harvard and the World Bank), Summers worked successfully for the repeal of the Glass-Steagall Act, which since the Great Crash of 1929 had kept deposit banking separate from casino banking.  He also helped Greenspan and Wall Street torpedo efforts to regulate derivatives.

02 March 2010

Fuel prices again

The Budget presentation saw the opposition walk out of the Parliament for the first time in India's history. This was over the government's raising fuel prices by increasing duties.
There are a number of problems with the fuel pricing policy in the country, see this article on the 'dieselisation' of the economy thanks to differential pricing.
For the long term view, though there appears to be little alternative to rational pricing. Suyodh's piece in the Express explains
We cannot run away from reality: we are talking here about pricing non-renewable natural resources. Feynman had once said: “for a successful technology, reality must take precedence over public relations, for Nature cannot be fooled.” The technology that has been built upon fossil fuel-based energy has to be transformed. The only way the market will do that is if it is confronted with higher prices.: