Thursday, December 28, 2006

Does Joe Stiglitz own an auto company in India?


A front-page top-half story in today's Hindu is on Ratan Tata's comments on the Singur controversy:

Tata Group chairman Ratan Tata on Wednesday blamed competitors for ``fuelling'' the controversy over the proposed Rs. 1 lakh car project at Singur in West Bengal ...

The Hindu story doesn't mention who the 'competitors' are. With a lot of hard work -- not! -- and hours of intense internet search -- not! -- nanopolitan has learnt the identity of at least one of Tata's competitors. It's none other than Professor Joseph Stiglitz, one of the 2001 Nobel winners in economics! You want evidence? Here it is, from the same newspaper:

One of the paradoxes of market `reform' in India is that if you are a big company and are planning to set up a factory, you want a free market to buy equipment and hire workers but expect government intervention to acquire land. Can this be justified on the basis of first principles?

There is a general view that where there are large externalities — urban renewal programmes, for instance — there may be grounds for government to try and buy land and help renew a city or part of a city. But the dangers of doing this when there is a single firm without externalities are enormous. This is because the government often uses the right of eminent domain with compensation below market price.

So future rents are shared between the firm for whom land is acquired and the original land owners in a very unequal way...

That's right, exactly, and that's why these firms turn to the government. In general, there is a price at which people would sell their land. The reason these firms ask the government to do it is because they don't want to pay that market price. So once you get into that mindset, it becomes a very dangerous precedent.

The argument made in India is that land holdings are fragmented, that there is no land market.

You have a problem when land is fragmented, or there are land market inefficiencies, and difficulties in getting clear title. Markets might be so poorly developed that businesses can't acquire land and that becomes an impediment to development. Of course, the right answer is to solve the problem of the land market and not to solve it for this particular person by taking over that particular piece of property!

4 Comments:

  1. T. Jayaraman said...

    Sorry, but I think you are reading that
    one wrongly. Stiglitz's comments precisely
    do NOT apply to Singur. Please see
    the article by Brinda Karat, Dec.13
    in The Hindu.

  2. Sahodaran said...

    I hope you were just kidding.

    The Hindu and Frontline has been looking at Singur with a favourable eye, even while criticizing the SEZ and the government taking over land elsewhere (not everywhere). Until now, it has not produced much coverage about this "government buying land for companies". I believe it was just Sidharth Varadarajan's inquisitiveness at play, though The Hindu wont be against any of the points Stiglitz had to say on this.

    It was Mr Tata who brought out this accusation.

  3. Abi said...

    Jayaraman, Sahodaran: I thought my language made it clear that there really wasn't a serious point behind this post. I guess I have not succeeded ...

    I found it interesting that (a) Ratan Tata chose this (rather late) stage to wade into Singur's muddy waters, and (b) the Hindu published an interview in which its Deputy Editor drew the interviewee out to say things that go against its own consistently pro-LF-government stance. I put these two together to have some fun.

    Jayaraman: Thanks for the pointer to Brinda Karat's article. I find myself agreeing with Stiglitz's view that land acquisition by the government for private industry is, to say the least, problematic. The LF government might have been very generous in Singur, but that only leaves me with other -- equally problematic -- questions. For example, are Singur farmers benefiting at the expense of the other residents of the state? I think it's better for the government to get out of this land acquisition mess altogether at least where a private industry is involved.

  4. Sahodaran said...

    :-)

    "I think it's better for the government to get out of this land acquisition mess altogether at least where a private industry is involved."

    For that; a national policy should be put in place. If only a few state governments (not all)- say West Bengal- takes such a stance, then it will easily lose out to other states.

    The "investors" are having a field time with different state governments competing among themselves in giving aid to them.This- in some cases- over the SEZ privilages.