India Power Market Article Shows NY Times Doesn’t Understand Capitalism

This post is an intersection of my research on the power industry around the world and a lack of understanding of the power of capitalism that I see reflected around me in Chicago and in many news outlets.

India’s Power Industry

The NY Times recently had an article titled “Scandal Posts a Question: Will India Ever Be Able to Tackle Corruption?“. The article described a scandal about India’s coal mining industry, a critical element of their power generation since India has heavy reliance on locally sourced coal.

Coalgate, as the scandal is now known here, is centered on the opaque government allotment process that enabled well-connected businessmen and politicians to obtain rights to undeveloped coal fields.

Why is this important? Per the article, 57% of India’s power is generated by coal. The industry is hobbled for lack of coal. 300 million Indians are without electricity, and a recent blackout effected huge areas of the country.

The Indian government used a bureaucratic process to assign out rights to these coal fields, instead of an overt capitalistic auction process (a fact that the NY Times article fails to mention), and many politicians and their cronies of course received the rights, likely due to overt or covert bribery and connections.

(the) $34 billion coal mining scandal that has exposed the ugly underside of Indian politics and economic life: a brazen style of crony capitalism that has enabled politicians and their friends to reap huge profits by gaining control of vast swaths of the country’s natural resources, often for nothing.

Why does this matter? When property rights are doled out in this manner, the people who receive them aren’t the BEST POSITIONED to develop the assets. If a profit seeking company paid for an asset in a public auction, they would be paying cash from investors (or out of their own pocket) and would need to “monetize” the asset in order to achieve a proper return back to investors. You don’t go into the auction without a plan to develop the asset, since you would be bidding against actual competitors who were motivated to do so and they’d likely pay more than you would. Per the article on India, this is the type of behavior that you see, instead:

Investigators now say that some of the favored applicants, having acquired the coal fields free, quickly sold them for tens of millions of dollars to steel or power companies. Others simply kept them as an asset and have not yet developed them, even as the country faces blackouts and coal shortages.

The NY Times treats this as some sort of “scandal” rather than as a FEATURE of socialistic systems. Politicians in these systems are exactly like capitalists in a capitalist society, using their role to obtain power and riches rather than for some sort of utopian “betterment of mankind” which the NY Times would likely expect them to do. In fact, these sorts of behaviors are modeled as successful and drive out would-be capitalists since the politicians in socialist societies hold the cards in terms of laws and processes and will use them against those trying to open up the process to a fair and transparent capitalist alternative.

India has no power for 300 million people, an unreliable system with rolling blackouts, and is crippling growth BECAUSE IT RUNS POWER AS A SOCIALIST SYSTEM RATHER THAN A CAPITALIST ONE. The answer is absolutely as simple as that. The scandal and the failures are product of a socialist system as doomed to fail as the USSR’s five year plans.

The answers to this problem of inadequate power are simple and can be found in any text from Smith to Hayek.

1. Sell state owned coal fields to qualified bidders (have the capital and means to develop the fields) in an open and transparent auction process
2. Protect the property rights of power developers by ensuring that they are able to build and site transmission lines and power stations appropriately
3. Protect the property rights of power companies by ensuring that they are able to charge and collect from customers and eliminate illegal connections to their systems
4. For areas that are a local monopoly (distribution), the state should ensure that performance and reliability are monitored via clear criteria and that entities that don’t comply should be fined or the franchise put up for auction to another qualified entity

Since the NY Times fundamentally doesn’t understand how capitalism works and that it is a BETTER solution that top down central planning or socialistic bureaucratic “queuing” models” (of which this is a primitive variant) they don’t make any of these recommendations. Scandals aren’t a problem – they are a direct result of the SYSTEM and will always be present in these sorts of political environments.

Cross posted at LITGM

8 thoughts on “India Power Market Article Shows NY Times Doesn’t Understand Capitalism”

  1. These NY times reporters learned economics in our high schools and universities, staffed by the most highly paid and degreed teachers in history. Indeed the same is true of the Washington Post and almost every major newspaper and network in the country. These reporters cannot accept the notion that a free market economy can provide for the poor, the sick and the helpless better than an economy run by central planners.

    When central planning fails they always assume it failed because the planners were imperfect. They cannot accept the notion that – in the long run – it is impossible for central planning to produce better
    results than no central planning at all. Only experience teaches humility; and only the willing can learn it.

    These reporters and their teachers believe that capitalists embody the seven deadly sins and that planner becomes ideal when he/she has the seven cardinal virtues.

  2. The scary thing from my perspective is that it isn’t just journalists that are confused. An entire generation of kids has grown up exposed to non-profits and “volunteering” and honestly believes that this is a viable alternative to capitalism, rather than being a luxury afforded by the successes of the capitalist workplace.

    Try it out for yourself when you talk to people you will be surprised.

    While socialism has failed as an ideology it has won in the “mind share” of many people, especially the young, without even being branded as socialism.

    Remember – everybody “wins” in every sport, and everything in school is scheduled and structured. All these items are not hallmarks of a vibrant capitalist system, with “creative destruction” – these are in fact artifacts of a “planned” society of which they are a large part.

  3. “Remember – everybody “wins” in every sport, and everything in school is scheduled and structured.” A bit off topic here, but this is the exact reason that social liberals will (and are) going after football under the guise of safety. Absolute winners and losers not just every game, but every play.

  4. Getting an easement for a new power transmission line is extremely difficult in the US also. I think a few states allow their IOUs to condemn land for the right-of-way needed. There was some recent federal legislation a few years ago that was supposed to aid but I haven’t heard cases of it expediting the process.

    I can only imagine the difficulties in building a new line in India. I would expect land titles to be fuzzy and lots of political corruption and extortion.

  5. Dare we ask if perhaps our youth so infused learn the comforts of paternalistic socialism at home? Not ideology but hanging out on the couch.

    I don’t seem to recall getting an allowance for instance after I turned 13 and became a wage earner, and taxpayer. Mind you that was not my first experience of work, it’s just I got paid after 13.

    And I bought all my own cars, and paid/borrowed and paid off/scholarship thru college.

    Of course they think Socialism’s great.

    Mom? Can I borrow ….the fruits of your lives labors?

  6. So the sooner it’s GET OUT the less socialists we’ll have.

    Money? get a job.
    Car? buy it. With your money. From your job.

    Sex? Sure. Move out and get your own place. *that’s a big motivator*.

    ______? Not under my roof.

    They’ll leave. Ask my parents.

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