Economy

An just and efficent land acquisition

Nandigram village, near Haldia in West Bengal, is up in arms against forcible land acquisition for the Indonesian Salim group’s proposed project. In this case, I do support Arundhati Roy and others who are trying to support the rights of the villagers:

Left and left-of-centre intellectuals like Arundhati Roy, Romila Thapar, Jean Dreze, Sumit Sarkar and others in a joint statement said the tense situation in Nandigram is "likely to be repeated across the state if the policy continues to be executed as it has, without consideration for human rights, democratic procedures and livelihoods".

I wonder if what happened in Nandigram, Singur and Narmada will prompt this leftists to support property rights. Without property rights, only way against govertment violation of property rights is case-by-case agitation. With property rights, the courts will be on the side of those whose property rights are or will be affected.

In the end, we need to ensure that land acquisition is possible without force and without excessive transaction costs and veto by mischievous minorities. Swaminathan Aiyar's proposal for community-led land acquisition sounds pretty interesting!

As a libertarian, I instinctively dislike forced acquisition of the property of citizens by governments. So I support the farmer agitations in Singur and Nandigram against land acquisition by the West Bengal government for the Tata and Salim groups.

I do so with some reluctance, since I would love to see a re-industrialised West Bengal. But there are good and bad ways of achieving this. The wrong way is for state governments to acquire land by fiat. The right way is to empower farmers to become partners in industrialisation.

The Prime Minister has promised a new, humane displacement policy. This implies, rightly, that the old policy was inhumane. In the holy name of socialism, the government acquired land for any purpose it pleased, public or private, and decided what compensation to give. The abolition of the fundamental right to property in 1976 meant that compensation depended on the whim of politicians, not farmers' rights.

...

However, a problem can arise when industry requires a block of contiguous land, and a few naysaying farmers exercise an effective veto even when the vast majority of farmers want to sell. The current answer is forced acquisition. Far better will be a new acquisition law that empowers farmers themselves to decide.

After all, if a few naysayers block a deal, they are affecting the property rights of farmers who want to sell. The new land law should provide for state governments or corporations to negotiate acquisition proposals with farmers, and then let the farmers vote on the deal. If a large majority--it could be two-thirds or three-quarters--vote in favour of selling, this should be binding on the minority.
In this scheme, the final decision will lie not with the state government or corporation, but with the community of farmers. It will constitute community-led acquisition. It will respect both the property rights and dignity of farmers, and make them full partners in industrialisation.

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The third feature of the new law should be to ensure that village residences stay untouched even when surrounding farmland is sold to corporations. A typical industrial estate consists of a core area that has to be walled off for security and tax reasons, and a non-core area with residences, community facilities and parks. The original villages should be incorporated into the non-core zones, which will then have a mixed population of villagers and sahibs, and not be enclaves of sahibs alone.


The U.S. government is a big insurance company, with a side business in national security: Paul Krugman

Found the above quote while browsing the Paul Krugman archive. Wow! It kinda puts the whole attitude of liberals towards the government and national security in the perspective! Isn't it?

Why do they want to dismantle it?

It's hard to understand why anyone would want to return us to the days before the New Deal, when millions of elderly people lived in poverty. But if you really dislike the notion that the government provides a safety net for the poor, then Social Security is the prime target. The U.S. government is a big insurance company, with a side business in national security. Social Security is the biggest social-insurance program that we have. It's been highly successful, and it's extremely popular. It's one of the things that makes people feel somewhat good about government -- and so, therefore, it must go.

The Fake Crisis: Economist Paul Krugman explains Bush's latest con -- Social Security


Cisco Ups the Stakes in the Outsourcing Game

SAN JOSE, Calif. // Wim Elfrink's climb up the corporate ladder has taken him from Holland to France, Italy, Switzerland and the United States.
But his latest promotion will take the Dutch polyglot far from his Western comfort zone. As the chief globalization officer at Cisco Systems Inc., Elfrink is taking his wife, two daughters and the family dog from suburban Silicon Valley to Bangalore, India.

...

The 50,000-person company wants 20 percent of senior managers working at the proposed Globalization Center in Bangalore by 2010. The executives will be a mixture of rising stars from San Jose and Bangalore and talent plucked from acquisitions and competitors worldwide.

International business experts say Cisco's executive migration is a shrewd move that should give high-ranking employees critical insight into one of the world's fastest growing economies.

Source: Cisco Shifts Executives to India - baltimoresun.com


Investment Strategy

Over the last few days, I have refined my investment strategy and decided to put it in writing. The idea is to get feedback from others, discover any holes/mistakes in the strategy and develop more commitment by making it public. So, here is the basic philosophy:

  1. The goal is get above average returns (compared to the market, or more specifically S&P 500 Index) after inflation and taxes
  2. Invest for the long term. No market timing or buying mediocre  companies  even though  they are cheap. It also means, be prepared to handle low returns (or potentially negative returns) for an extended period of time (say, 4% real returns over next 15 years). This is important, because stock market has returned a huge returns in the recent past, and thus, it is likely to perform much more modestly over next many years.
  3. Don't loose money. Best way to do this is to look for margin of safety when buying stocks of good companies. However, to prepare for the worst, invest only after putting enough money aside for taking care of important needs and prior commitments (such as mortgages, insurance premiums, etc.).
  4. Invest in the companies that have strong competitive advantage (or in Warren Buffett's words, a wide moat). One sign of a competitive advantage is higher returns on invested capital. But the best sign is a history of price increases. If the company can consistently increase the prices of its products, despite of the competition (and even while competition is actually reducing the prices) then the company has got a wide moat. The company that cannot raise the price of its product will loose to the inflation.
  5. Another characteristics I am looking for is the low continued capital investment. If a company has to make heavy capital investment then you can bet that it doesn't have a wide moat. Many tech companies fall into this category. They have to keep investing in the R&D just to stay competitive.
  6. Honest and straightforward management. Look for simplicity and clarity in annual reports and other filings. Also, letter to the shareholders by the Chairman and CEO is critical. Mistakes should be acknowledged and there should not be smoothing out of the earnings. Management focused on selling the products and not the stock. Management focused on  the long term business performance, and wiling to take short term hits. No excessive stock options and dilution. No buybacks just to increase the stock option compensation. Look for high insider ownership to ensure that management's interest is aligned with that of shareholders.
  7. Easy to understand business; good recognizable brand
  8. When to buy - Out of favor temporarily. Panic selling.
  9. Stay within the circle of competence -- consumer brands, retailers, etc.

Over the next few days, I will refine this strategy based on the feedback and review of the reference material. I will also post references to the articles, books, and other items, and also mention a few stocks that I believe fit the above criteria.


Science and Free Markets

I was very glad to see free markets being defended by someone from academia! The comparison between scientific progress and the free market is right on!
Link: Pure Pedantry : On the parallels between science and the free market.

I have always been struck by the parallels between the free market and the scientific enterprise -- yet I am puzzled that so few scientists embrace free markets.

Let me put it this way. What would happen if the government decided what scientific questions we should pursue by fiat? Most scientists would tell you that new discoveries would be stifled because the scientists could not pursue those questions that they find most interesting. Bureaucrats would not be as educated in all the areas the scientists were studying, nor could the enterprise benefit from the plurality of techniques employed in the absence of central planning. Science -- it would appear -- benefits from a form of entreperneurial competition.

Yet, most scientists -- at least the ones I have met -- are not whole-hearted proponents of free markets. Most scientists I have met have a strong socialist bent. Why they fail to see how what is beneficial to the process of science would not be desirable for the rest of society is a source of continuing puzzlement to me.

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Scientific enterprise would be perfectly amenable to central planning if we knew what the answers would be in advance. Unfortunately, we don't. Similarly, state planning of the economy would be lovely if we knew what technologies would turn out to be important and where resources should be allocated years into the future. Unfortunately, we don't. Because we do not operate in a world filled with ideal information, Phelps argues that society benefits from the dynamism and creative destruction of the free market. I would argue that the same premise applies to the scientific enterprise -- and that scientists should recognize the parallel.


Using Microfinance to help disaster victims

Today, OpinionJournal has an excellent article, A Hand Up, Not a Handout, by Mr. Yunus urging to use microfinance to help Katrina victims. The best is at the last:

... giving someone a hand up doesn't always require a handout. The most important thing is to help people get back to work while letting them hold on to their self-respect. Microloans can do just that.

Mr. Muhammad Yunus and the Grameen Bank (which he founded) jointly won the 2006 Nobel Peace Prize. A very well-deserved recipient in a very long time.

Why microfinance is so successful for helping poor?:

The basic philosophy behind microfinance is that the poor, although spurned by traditional banks because they can't provide collateral, are actually a great investment: No one works harder than someone who is striving to achieve life's basic necessities, particularly a woman with children to support. Sadly, it is also true that in catastrophic circumstances, very little of the cash so generously given ever gets all the way down to the very poor. There are too many "professionals" ahead of them in line, highly skilled at diverting funds into their own pockets. This is particularly regrettable because very poor people need only a little money to set up a business that can make a dramatic difference in the quality of their lives.


Independence vs Freedom

Amit Varma's first article at TCS Daily, Transforming India's Mental Landscape, is spont on:

India recently celebrated the 59th anniversary of its independence. That a nation with so much regional, ethnic and religious diversity could hold together as a peaceful democracy would have seemed astonishing in 1947, when there was no precedent for an achievement of this nature.

This freedom was achieved partly through a consciously non-violent struggle, which became an inspiration to other freedom fighters, such as Nelson Mandela. And yet, laudable as this achievement is, it is time to question just how deep India's commitment to freedom runs


Independence Day is celebrated in India mostly for getting soverignty. All the well-known patriotic songs, such as "Vande Mataram", "Jana Gana Mana", "Sare Jaha Se Acchacha", praise the motherland. Praising one's motherland and singing patriotic songs are fine! But where is the celebration of the freedom?

We can't bring ourselves to say that freedom is an important in itself and now we can do what we feel like doing (as long as we respect the desires of others to do the same)! Independence Day has become a sacred day, an another God! To be worshipped! To be revered!

We should remember all the sacrifices that so many people did to get rest of us the freedom. But remembering the sacrifices but forgetting the reason why those sacrifices were made, kindda of negatives the whole remembrance! The reason so many people made the ultimate sacrifice is because they wanted themselves as well as others to be free! Freedom was the whole point of the exercise! And not replacing one tyrannical regime with another.

Our current democratic system might be a whole lot better than the Colonial but  I really doubt that not having the right to private property, right to bear arms in self-defence, and other individual rights will make one feel really free! Maybe that's why we don't feel like celebrating freedom.


Free Market System Drives down the Real Cost of Living

This 1997 Annual Report of the Federal Reserve Bank of Dallas, Time Well Spent: The Declining Real Cost of Living in America, shows how the real cost of living has declined over the century. It uses the work-time required to purchase goods and services to compare the living costs across time. Truly eye-opening, especially, for those who are fond of complaining that life has become harder over time.

The "Exhibit 8", titled, "The Bounty of Time Well Spent—Household Ownership and Use of Products", plots % of households with Telephones, Automobiles, etc. over the century. It is stunning!

The chart, titled "THE WORK-TIME COST OF PRODUCTS, TODAY VERSUS YESTERDAY", gives average work-time required to acquire various goods and services over the years.

It won't be real if everything was so good! The spoiler comes at page 14:

Americans do, of course, have to work
longer to buy some goods and services.
Paying for higher education and medical
care requires more hours of work than it
used to. Tuition and fees at public colleges,
for example, have doubled in terms
of work time since the mid-1970s. Inflation
has been even steeper at America’s
private institutions.9

Also, see the accompanying chart giving the comparison of higher education costs over the year. It has almost doubled compared to 1979! Education at a Public University costs 200 hours more!

What's missing is analysis of whether those extra work hours spent in educating yourself is worth the decline in the work-hour costs for a typical univesity graduate!

They should given more space for analysis of medical expenses too!


Anti-immigrant liberals

Link: EconLog, Still More on Immigration, Arnold Kling: Library of Economics and Liberty.

    What should you call someone who wants government to provide for our education, competitiveness, and health care but whose concern about "us" stops at the border? The obvious label would be national socialist. But George Bush and Paul Krugman are not Nazis...

    The alternative ideology that I would propose might be called transnational libertarianism. The ideal libertarian world would have no economic borders. There would be no problem of illegal immigration, because all forms of immigration would be legal.

I thought the same way but couldn't have made the point as eloquently as Arnold Kling.