Comments on AspiringbuddhA: The Limitedless Market

Wonder if its too late to write about this, but ca...

2007-01-26T12:23:00.000-08:00

Wonder if its too late to write about this, but came across your post rather late. Your rebuttal to Guha's 4th point is
based on very specious argumentation. The reasons I shall list

1) If the particular colony under survey is indeed illegal, the government is not required to provide it water in the first place. Here, you bring up the example of this colony because you think it suits your case, at some other place, free-marketeer who supports lower taxation may easily have brought it up as a case of 'where your taxes go - subsidising illegal colonies' water supply'. Drinking water is a touchy issue, almost everyone believes that everyone should have access to clean drinking water. So, I'm assuming that irrespective of your beliefs on the market, you believe that these people somehow deserve clean drinking water, illegal housing notwithstanding. I agree with your assumption, and so will go on to point 2.

2) The 'small sachets' of water that you mention are actually of 250 ml. at Rs 1 per sachet, it works out to rs 4 per litre. Do not for a moment believe that this represents 'limited purchasing power'. I belong to a family that cannot be described as 'low purchasing power' by any means, and we buy drinking water at rs 20/ 20 litre bottle, or rs 1/ litre, owing to the high TDS value of the ground water in the area that I live in. I can assure you that any family of 'limited purchasing power' cannot afford to meet its daily requirement of drinking/cooking water at the rate of Rs 4 / litre. The reason that they can buy these sachets inspite of being families of limited means is that the Delhi Jal Board comes with the tankers of 'insufficient, unsafe' water, and so only a small part of the daily requirements are met by the sachets. If the DJB was to pull out completely, the market wouldn't miraculously step up overnight to benefit the residents of Sanjay Colony, they would simply have to fork out more for their water, and the ones among them who have the least purchasing power would indeed have to settle for lesser water than they require, like Guha says. Also, please do not compare the 1 re sachet of water with the 1 re shampoo. Drinking water is a public good.

3) This is tangential to the issue, but I couldn't resist. It is interesting to note your choice of the adjective 'unsafe for drinking' to describe the water suplied by the DJB and to not talk about the hygiene issues of the water in the sachets. A lot of these sachets are made of plastic that is being re-used after being collected by rag-pickers from railways tracks, dust-bins etc. The market is probably covering up for the insufficiency, in no way however is it ensuring the hygiene. I would say your choice of terms is a classic case of selective argumentation.

we are the market Bah! I thought we are the govt.

2006-12-13T14:30:00.000-08:00

we are the market
Bah! I thought we are the govt.

I agree with you that markets might prevent pollut...

2006-11-29T09:25:00.000-08:00

I agree with you that markets might prevent pollution, if someone stands up and says that the natural resources belong to them and they are accorded the rights. But I still don't see why that would happen, if all the damage, as in Anonymous's CO2 scenario, is collateral. I am thinking if one could actually implement such a policy on a large scale. Can you think of the people of some Polynesian island being stakeholders in Exxon Mobile? Also, it's a well known fact that industry has powerful lobbyists who would fight against implementing any such property rights; after all, pollution is profitable for them. And I also think that there are two points here with subtle differences. Guha's original point seems to be that it is in the nature of markets to pollute and externalize costs. I don't think it will be difficult to disagree with this. The other point is whether we can actually have a free market that is left to itself, which will develop the necessary property rights as you say. The two examples you have given are not bad, but I don't think in general that this is true. In the US, many corporations left to themselves did pollute and there seemed to be no property right enforcement by anyone in sight. The government did need to intervene. In the US, drinking water for example, is still largely controlled by the government and it's not causing problems. I also think that the enforcement of property rights depends on the legal systems naturally; people who are directly affected by pollution will have a great incentive and common voice to secure property rights. It also depends upon the just and transperant nature of the justice system. How many people who But what about the people who are indirectly affected? I guess the real point I am getting at is whether what you say can be realistically done and whether it has been done on a global scale historically. I don't believe so. So even if the government provides a framework for property rights, if the market keeps on polluting true to its nature, should nobody do anything at all?
My guess is that as the effects of pollution/global warming become pernicious enough, even shareholders may start demanding clean industrial processes. But it would be silly to wait till that happens and not have any government legislation on pollution till then. But I again say that I don't think government taxation of pollution is necessarily detrimental to free markets. The reason is that corporations usually find that even paying the tax and continuing their processes is more profitable than converting all their processes to environmental friendly ones. But on another note, I want to ask you, if creating ownership of natural resources was really the solution, why has it not been implemented yet even in pro free market economies? The logistics to me seems extremely complicated.
The bottom line I think, is that enforcing such property rights on a large scale may be logistically impossible. On a short scale, it might be possible. In any case, it does not make sense to simply wait until any such system comes into being. The key factor in environmental pollution is time, something that may not factor in in other decisions. And we don't have much time.

Ashutosh: My point is that free markets left to th...

2006-11-29T08:15:00.000-08:00

Ashutosh: My point is that free markets left to themselves would develop the necessary property rights and legal arrangements which will reduce pollution. The only thing the government need provide is a framework within which property rights are protected.

The term framework is crucial. The government interventions or solutions (taxation, confiscation etc.) are never neutral, they always have unintended and unforeseen consequences. The government or state should be restricted to providing a framework within which solutions are found.

That framework usually takes the form of the rule of law, and the protections of property rights.

Notice that all the subjects of pollution have no owners. If the property currently held by government but owned by no one were to be sold or transferred to the local stakeholders that would be a great starting point for people to start exerting their rights over the property.

If you think the Ganga case is unrealistic, take the instance of Rajinder Singh who mobilized a community to take ownership of a dead river in Rajasthan and used check dams to revitalize it. The only thing the government did was try to claim the river as government property once it was revitalized. The villagers resisted and were able to take control of the river. The property holder need not be a single person it could be a community or group who have a stake in the property.

The rivers died because of neglect, the Ganga is polluted because no one stands up and says it belongs to them and they want it to be clean... because no one owns it. I'd say the best Ganga bachao plan would be to setup a Ganga River Cooperative and give each person who lives along the river a stake in it.

Gautam, the Ganga example you gave makes your poin...

2006-11-29T07:28:00.000-08:00

Gautam, the Ganga example you gave makes your point, but how often is that really going to happen? Unless it does, the only way to limit pollution by free markets is by imposing some tax or some penalties, which the government can traditionally do. Like I said earlier, if people including shareholders also are concerned about pollution, then the responsibility of taxing markets in one way or the other can be taken up by them. I believe that Guha's statement was specific; he said "If left to themselves, free markets would pollute. I don't think that the statement is false with that qualifier. Of course, you can have a free market that pollutes relatively less, with government controls over it. What about the US, which has some of the most stringent pollution laws in the world and yet has the freest market in the world? (perhaps excepting Hong Kong). On the other hand, you also have the example of communist countries, which were some of the worst polluters in the world. My point is that both extremes are equally bad; it is in the interests of free markets to pollute if not doing it compromises on profits, which it usually does. Pollution is a very convenient way of externalising costs. I do agree with Anonymous that unless someone comes up with a way of assigning property rights to natural resources, we will need some government control on polluting corporations. But as many examples show, this will hardly curb their free market nature as such. So I don't think pro-free marketeers need to worry.

A common misunderstanding is that you can't apport...

2006-11-28T22:23:00.000-08:00

A common misunderstanding is that you can't apportion property rights over things such as air or water bodies or such things as bees pollinating flowers . If you ask me how they will be apportioned my answer would be I don't know, because they have never needed to be apportioned

Actually, unless someone comes up with a way of assigning property rights to air and water as you suggest, preventing environmental pollution through free markets are a flight of fancy. Specifically, consider global warming. C02 released into the air does not affect the "owners of that particular air" in any way. It affects coastal cities by causing dramatic rises in sea level etc. How exactly are free markets going to solve this problem? By abandoning coastal cities? Virtually all cities are on coasts. It is high time free marketeers realize that private property is not going to solve each and every problem of human kind. Your critique of Guha's piece is very poor.

Naveen you raise interesting problems. I will retu...

2006-11-28T10:25:00.000-08:00

Naveen you raise interesting problems. I will return to them when I have collected my thoughts.

Ashutosh, I'll deal with the safety and health of workers with Naveen's objections. As far as the environment is concerned, it is not possible to exercise externalities unless there are unclear property rights. Both positive and negative externalities only exist because of that.

A common misunderstanding is that you can't apportion property rights over things such as air or water bodies or such things as bees pollinating flowers . If you ask me how they will be apportioned my answer would be I don't know, because they have never needed to be apportioned.

Land didn't need to be apportioned till agriculture came along... in an industrial society we have somehow resisted the development of property arrangements for what we see as community property. In the case of Honey bees and flowers, Hong Kong economist Steven N.C. Cheung has a famous paper which shows that in Washington state there are regular paid arrangements amongst bee-keepers and apple orchards for just that purpose.

Kiran, I don't think Mr. Guha has done a very good job of identifying monopolies. The only real monopolies are legal ones, those backed up by the power of force engendered in the state.

Transport/network connectivity is certainly not a universal natural monopoly. First of all there is inter-mode competition i.e. roads compete with railways compete with waterways compete with air travel.

I was going to write another post about airports in India. Where I'll raise some points regarding airport competition.

I do get your point, that natural monopolies can emerge, but unless they are backed up with a legal sanction, they attract competitors to they super-normal profit industries and over time they no longer remain monopolies. So a natural monopoly without a legal sanction does not remain one for long.

Thanks all of you for your comments. I'll try to tackle Naveen's point soon.

Hi GautamI agree with you that competition is the ...

2006-11-28T09:09:00.000-08:00

Hi Gautam
I agree with you that competition is the answer for several of the seeming imperfections of the market. But the problem is that markets tend to favor monopolies at several places. Such situations are called natural monopolies. One example is the providers of transport/network connectivity.

In the event of a natural monopoly, it becomes obligatory for the state to take over that sector.

The essence of a good economist lies in the skill at identifying natural monopolies. Mr. Guha didn't do such a bad job after all.

What I like about your post is that it is balanced...

2006-11-28T08:46:00.000-08:00

What I like about your post is that it is balanced, and you don't rebuke the original post unconditionally. But I would slightly disagree with you about point 1. and 2. Whether markets actually pollute the environment is another point (history has many examples to support this contention though) but I don't really disagree that the philosophy of markets may include polluting the environment without regard for its repurcussions. The reason is that corporations always find it convenient to externalize costs, and polluting the environmental in profit-making ventures and then leaving it for others to clean up is a very efficient method (for the corporation) to externalize costs. There may be specific corporations which do pay attention to the environment, but in general, it won't ever be actually profitable for corporations to expend resources and money in cleaning up. So in general, polluting the environment is a philosophy that is surely accomodated and even necessary for corporations, when it can be and is often subsumed within the greater goal of profit making. Of course, this philosophy can change when the consumer demands such a change, but why will that happen except in some circumstances? I have similar thoughts about 2.

Somehow I am not convinced by your arguments of th...

2006-11-27T22:28:00.000-08:00

Somehow I am not convinced by your arguments of the market regulating itself.
There is always need of a regulatory body for protecting the environment and the consumers.
Remember Ralph Nader ? or the FDA ?

Gautam, the point "The challenge is to look beyond...

2006-11-26T14:57:00.000-08:00

Gautam, the point "The challenge is to look beyond the obvious symptoms which are easily attributed to the market and to the underlying regulatory framework within which it functions." is well made. But I have one problem which you have not addressed: scale. Are the solutions scalable even in the face of market-friendly regulations?

Also, let us take 2 and 3 in the context of the localised examples that you offer.

Can you tell us more about where firms in the manufacturing industry have competed in terms of offering more health and safety? My hypothesis is that regulation and ngos have put more pressue on this than market forces. Cheaper technology has also helped.

And i think consumer vigilance is important. If I take the pani-puri example to the whole of Delhi, I am pretty sure competition must have had a miniscule effect. But consumer vigilance at an individual level or even a section of customers can have dramatic improvements. The Amazon reviews are one good example. I have accessed the site lots of times and bought quite a few books. Yet I am lazy to post a review or even affirm the "helpfulness" of a review. But the thousands of reviews out there by vigilant customers definitely gives important institutional feedback and does help the market.

4 is interesting. Perhaps Amartya Sen's famine thesis weighs on Guha's mind. There was a market but no purchasing power and that led to the famine.

In perfect agreement with the post... mail it to G...

2006-11-26T05:17:00.000-08:00

In perfect agreement with the post... mail it to Guha too.