The Indian Economy Blog

July 15, 2006

How Nehru And Shastri Made Dubai Rich

Filed under: Economic History,Regulatory reforms,Trade — Amit Varma @ 2:30 pm

Bhavya Khanna relates a fascinating explanation:

Nehru in his often stated brilliance imposed severe restrictions on the trade and price of Gold in India. The sheik of Dubai had free trade in Gold, and was well, a smuggler’s paradise. Combine the two and you have possibly the largest movement of illegal gold trade in the 20th century, between India and Dubai. Figures, sadly, aren’t exactly freely available for the sheer amount of trade that took place since it was all kind of illegal. But figure it out for yourself. Dubai has about 1/20th the Oil reserves of Abu Dhabi and was pretty much a creek with a palace 30 years back. They started building some serious infrastructure post that, and the city now speaks for itself. [Link in the original.]

Hmm. Well, restrictions on economic freedom always up end benefiting someone else. If India’s attitudes towards the license raj and its labour laws are different, I’m guessing our manufacturing sector would be much better off vis-a-vis China, and the alarm clock I bought a few days ago might even have been made here, not there. And those labour laws, and a fair chunk of the license raj, are still in place. When will we learn?

(Link via email from Aadisht.)

Update: On a related note, here’s Tim Harford writing in the Financial Times about why “[s]uppressing a market is a bit like squeezing a balloon – the trade will usually pop up somewhere else.” Do read.

39 Comments »

  1. Well, knock me down with a feather! Nehru? Making a mess through some idiotic economic policy? Shirley you jest. The man was brilliance personified! Not just his own brilliance, anyone remotely connected to him — even by marriage — is absolutely marvelous. The dynasty he spawned is by some god-given miraclous power endowed with genius when it comes to governing and making policy. At least that is what I gather since the Indian voting public apparently believes so. Because of the behavior of the Indian voter (which I am told is simply uncannily marvelous in its wisdom), grown educated intelligent men kowtow before the members of the dynasty and enjoy the fruits of power.

    Naah, there must be some mistake. Cha-cha Nehru could not have made any mistakes.

    Comment by Atanu Dey — July 16, 2006 @ 12:49 pm

  2. You think Nehru existed a long time ago? We have a Nehru as a PM now.

    Apparently he said, “What will people think of me?” when DMK’s Bala offered an ultimatum on 10% divestment of Neyvelli (India Today). Instead of playing hardball, the classic wimpy Nehru-type has being ruling for the past two years and probably will for few more.

    Manmohan will be wonderful business case study on what happens when a studious worker is promoted to a leader. In an urge to satisfy all parties, wimpiness oozes out putting that organization in danger, like our country is currently.

    Comment by Chandra — July 16, 2006 @ 8:54 pm

  3. Always knew you were a fan of Nehru, Atanu!

    Chandra, I share your disillusionment. I expected so much when Manmohan became PM, and look what happened.

    Comment by Amit Varma — July 17, 2006 @ 2:55 am

  4. Your’e right the IIT’s were also a big conspiracy between the Silicon Valley and Nehru. And keeping Democracy intact in an unruly land filled with religious bigots was defintely a conspiracy between the Vatican and Nehru. You should really stop this blog as soon as possible. It is a great dis-service to other indians!

    Comment by Chris Prabhu — July 17, 2006 @ 4:41 am

  5. How about get a similar list of Indian companies?

    http://www.forbes.com/2006/06/29/cx_ds_0710philanthropy.html?partner=msnbc

    Comment by Chris Prabhu — July 17, 2006 @ 4:51 am

  6. Amit, I am not the least surprised by the leaders that Indian democracy gives rise to. The following is about American democracy (which has a longer pedigree) but is applicable to India.

    “When a candidate for public office faces the voters he does not face men of sense; he faces a mob of men whose chief distinguishing mark is the fact that they are quite incapable of weighing ideas, or even of comprehending any save the most elemental — men whose whole thinking is done in terms of emotion, and whose dominant emotion is dread of what they cannot understand. So confronted, the candidate must either bark with the pack or be lost… All the odds are on the man who is, intrinsically, the most devious and mediocre — the man who can most adeptly disperse the notion that his mind is a virtual vacuum. The Presidency tends, year by year, to go to such men. As democracy is perfected, the office represents, more and more closely, the inner soul of the people. We move toward a lofty ideal. On some great and glorious day the plain folks of the land will reach their heart’s desire at last, and the White House will be adorned by a downright moron.”
    * Baltimore Sun (26 July 1920)

    Comment by Atanu Dey — July 17, 2006 @ 8:35 am

  7. Chris Prabhu, no, the IITs were no more a conspiracy between Nehru and the Silicon Valley, than the Himalayan Blunder was a conspiracy between Nehru and the Chinese. Nehru was probably not intrinsically evil. I don’t believe that most people are evil. But I do believe that most people are stupid and their leaders reflect their inner soul. (See quote above.)

    Nehru was supremely clueless. Nehru, the Nabob of Cluelessness. I am a big fan of Nehru (as Amit mentioned) because in many matters I too am clueless. But I can never reach the heights of cluelessness that Nehru achieved. Why? Because I have a clue that he did not have: I know that I am clueless in innumerable ways; Nehru did not.

    Comment by Atanu Dey — July 17, 2006 @ 8:41 am

  8. It’s so easy to criticise. You and Atanu seem quite well known and popular and capable of doing a lot for our beloved country. Why don’t you enter politics? Obviously, that takes a lot more. Anyone with a more than decent fan following/readership should consider entering politics and, really, doing something about all the issues that are so easy to rave on about. I’m no fan of Nehru, but surely the sarcasm that Atanu spouts isn’t entirely justified. By the way, the spelling of ‘Sheikh’ is ‘Sheikh’. Thank you.

    Comment by Avinash Subramaniam — July 17, 2006 @ 9:01 am

  9. Avinash, me enter politics? I have as much chances of being elected to political office in India as of being elected the Queen of Spain.

    Comment by Atanu Dey — July 17, 2006 @ 9:22 am

  10. Chris Prabhu, I am a huge admirer of Nehru in terms of what he did in keeping the institutions of democracy alive and vibrant. But equally, I’d be blind if I didn’t see the damage his economic policies caused. This blog is, and this post was, about economics. I don’t see the relevance of the IITs to this discussion.

    Comment by Amit Varma — July 17, 2006 @ 3:40 pm

  11. Current admirers of Nehru seem to forget that the biggest threat to India during Nehru (and Indira’s time) was from communism, not from religious violence – although it was always simmering.

    Nehru was such a dud because of his precedence – his precedence on focusing on those 2000 IIT seats (creme de la creme who were mostly ahead those visa lines year after year – you guys read too many foreign magazines, IITians prosper in SV and its not located in the Himalayas) rather than on primary education for crores of post-independent children; his focus on govt driven mega industries rather than enabling market forces; his continuation in office for almost 20 years creating a personality cult we are unable shake even now. He and his daughter fought the biggest threats communists threats by become socialists themselves – if one can call it a fight. And I didn’t even bring up the territorial lose to both our neighbours to the west and north – never mind the utter contemptible justification not to aid Tibetans to fight off their communists aggressors. Where the admiration for Nehru comes from beyond the Indian government text books for school children is a mystery to me. Nehru is no Mahatma; he is no Ambedkar; and he is no Mandela. If you want more, compare Nehru’s reign as first PM of India with George Washington’s reign as first president of US.

    And what about the precedence of fight religious tensions by the so called secularists – here we have jihadi terrorists murdering 200 people and all the media, TV and print, can take about is Hindu fundamentalism. Nothing about who these murdering terrorists are. How many religious minorities were killed in the past few days? How trains or market places or places of worship did Hindu fundamentals blow up in the past 60 years since independence. How many terror wars are they waging in other countries under pretext of oppression and religious bigotry?

    Apparently nothing explains jihadi terror in India better than Hindu religious bigotry and Hindu fundamentalism.

    Comment by Chandra — July 17, 2006 @ 8:54 pm

  12. Atanu, that’s the problem with the intellectuals, you underestimate your chances of getting elected. Perhaps it’s a convenient. I wonder what happened to that political party some people from the IITs were thinking of starting. I guess they got cold feet. Anyway, if people like you did stand for elections, people like me would, perhaps, be more inclined to vote.

    Comment by Avinash Subramaniam — July 18, 2006 @ 7:18 am

  13. Amit, you always sound short sighted. I really wonder if Dubai would not become rich without India’s Nehru and Shastri. You must admit that post independence we adorned socialism along with pretty many other countries while the other group embraced capitalism. Stalin died and so Roosevelt. I just can’t plainly level blame on Nehru, he certainly did his best at his time on policy front.

    It has almost become fashion for every person to advocate free markets for all the problems. The same set of macroeconomic principles tell you that external intevention is necessary for efficient allocation of resources.

    Comment by Harsha — July 18, 2006 @ 8:36 am

  14. Avinash wrote: Atanu, that’s the problem with the intellectuals, you underestimate your chances of getting elected. Perhaps it’s a convenient. I wonder what happened to that political party some people from the IITs were thinking of starting. I guess they got cold feet. Anyway, if people like you did stand for elections, people like me would, perhaps, be more inclined to vote.

    Yeah, if intellectuals contest, people like you will vote. That reminds me of the US presidential candidate who was told by his aid that he is sure to win as all right-thinking people would be voting for him. He replied, “That is not good enough. I want the majority to vote for me.”

    The fatal flaw with democracy is that it reflects the will of the majority. If the majority consists of uninformed morons, we will see uninformed morons ruling the roost.

    Comment by Atanu Dey — July 18, 2006 @ 9:16 am

  15. Chandra wrote:

    How trains or market places or places of worship did Hindu fundamentals blow up in the past 60 years since independence. How many terror wars are they waging in other countries under pretext of oppression and religious bigotry?

    Apparently nothing explains jihadi terror in India better than Hindu religious bigotry and Hindu fundamentalism.

    [Emphasis mine.]

    Hear, hear.

    Comment by Atanu Dey — July 18, 2006 @ 9:19 am

  16. Atanu, you do realise that a lot of people get elected not because they get the majority vote but on a minority vote. I think we underestimate the people. Give them something to think about, nd they might not end up voting for the morons they are forced to vote for. I think staying away from the scene because the scene is full of idiots can, often, be the reason the scene is full of idiots. We really don’t know whether people like you and me will get elected because we never venture into the cesspool that we so conveniently label is politics. I was looking forward to that party which was going to be set up by the IITians. I would dare to say that if the majority is giving a decent choice they will opt for the decent choice. We really cannot give up on people so easily. It’s, at the risk of repeating, the easy way out. For all you know, the Uber blogger Amit Verma might end up geting many more votes than we’re, even, capable of imagining. Well, okay, maybe not, but there has to be a way to improve the political scene. Give or take that American President you have quoted.

    Comment by Avinash Subramaniam — July 18, 2006 @ 7:07 pm

  17. Chandra, no one would try to explain jihadi terror as a consequence of hindu bigotry — that is ridiculous. But neverthless, both jihadi terror and hindu bigotry exist, and mostly independently of one another.

    Agree with you about Nehru and his little one, if we’re talking economics.

    Harsha, thanks for the compliment. I agree with you that Nehru’s socialist mindset was common in those days, and quite understandable in those days, and that his intentions were good. That doesn’t make the mindset right, and it doesn’t undo the economic damage his actions unquestionably caused.

    Avinash, dude, you stand for elections. Atanu and I are happy enough blogging.

    Comment by Amit Varma — July 19, 2006 @ 12:13 am

  18. Name one good thinker that became a good politician. Politics, when all is said and done, is a business, with its own rules of survival. Good thinkers won’t cut it as politicians, which is just as well because we need them on the watchdog side of government. Here’s to the IEB!

    Speaking of Nehru’s cluelessness, I am not sure if it was him or the era. I was a pretty sharp college student in India in the 70′s, and my equally bright buddies and I had no fancy for free market capitalism back then. Heck, we thought that in a poor country such as India the economy needed to be managed or else the Tatas and Birlas would run amok. We really believed that free markets were an indulgence of the first world countries.

    It wasn’t Nehru. It was the way we all were back in those days. Ultimately, human thought is firmly rooted in time and place. And who is to say that unbridled free market capitalism is the final resting place for mankind? Maybe man would think of something even better in another hundred years.

    Comment by Sarat — July 19, 2006 @ 5:47 am

  19. Thanks for the clarification.This blog is about economics!
    Any comments on this?

    http://www.ciionline.org/news/newsMain.asp?news_id=624200614506PM

    Comment by Sun — July 19, 2006 @ 6:05 am

  20. Me too. We’re happy criticising.

    Comment by Avinash Subramaniam — July 19, 2006 @ 7:29 am

  21. Sarat, since you just asked for one name, I will give you only one of easily hundreds. Winston Churchill. The guy was sharp as a tack and was the consummate politician. He hated Indians and India, of course. But then it was quite in keeping with his priority: England.

    If India had anyone of Churchill’s character as a leader today, India would have whooped the Paki and Beggardesh asses before breakfast and taken the rest of the day off to go fishing.

    Instead we have Womanmohini as our fearless leader.

    Atanu

    Comment by Atanu Dey — July 19, 2006 @ 1:42 pm

  22. Well,
    It is not very surprising that Nehru did this. It is very disheartening to hear this though, because these are policies which hinder India’s growth.
    Good post!

    Comment by Alex — July 19, 2006 @ 3:09 pm

  23. Guys,

    My comment was supposed to be sarcastic! I’m a fan of Nehru too. If you know American history. He has both qualities of Jefferson and Washington.

    Thanks

    Comment by Chris Prabhu — July 19, 2006 @ 5:46 pm

  24. Atanu, I beg to differ on Churchill being lionized as a thinker – a man of vast intellectual output, yes, but a thinker, no. Not to digress into politics and keep the discussion true to the IEB agenda, wouldn’t you say that political leaders are blamed too much for bad economic decisions and applauded too much for good ones?

    The more I read about the inner workings of government, the more I tend to blame, or appreciate, that Think Tank. Whether an actual think tank exists or not, there is always a coterie of policy makers surrounding the political mouthpiece. These are the people who actually study, analyze, shape and form policy. Our fearless leader here in the US is a prime example. A person of few opinions most of his life, George Bush slowly evolved into a man with a vision and a lot of opinions. Thank you Karl Rove, Cheney, Rice and the gang.

    Comment by Sarat — July 19, 2006 @ 10:37 pm

  25. Not knowing where else to comment on the new blog design….

    I am not sure about this new design. The useful latest comments (or something like that) section on the right bar will be sourly missed – it helped conversations to continue on old posts. And why are most blogs moving to pale white (and pastels) colours – some dark colours are fun.

    And this comment box doesn’t work properly, BTW.

    Comment by Chandra — July 22, 2006 @ 12:23 am

  26. Is it my browser or are the articles supposed to appear in a colum one inch wide and a few yards long?

    Comment by Floridian — July 24, 2006 @ 3:21 am

  27. Actually, we had a minor issue during our upgrade to the latest version of WordPress. We should have the old format and layout back, soon.

    Comment by admin — July 24, 2006 @ 8:49 am

  28. The column is still too narrow, causing very long scrolls. Is it my browser? As for your redesign, why fix it if it ain’t broke?

    Comment by Sarat — July 25, 2006 @ 4:53 am

  29. Not a redesign — sticking to the old, familiar format.
    We are just upgrading the blogging software (WordPress) and had some glitches — our tech guru (MM) is on the job

    Comment by Prashant Kothari — July 25, 2006 @ 6:47 am

  30. Readers of this blog,interested in reading a blog on economics of course!,will find this blog usefull

    http://econtufte.blogspot.com/

    Comment by Sun — July 25, 2006 @ 7:53 am

  31. “He hated Indians and India, of course.” Not an accurate statement. Just like Nehru was a socialist, because everybody was at the time, Churchill was like others of his generation in having racist views of Indians. But it would be seriously mistaken to say he hated India and Indians. He had a romantic attachment to India and a romanticized notion of Indians, which was mixed up with his romanticized view of Britain and its grand role in the world and in history.

    The idea that a person with Churchill’s strongly nationalistic views would have been better than Nehru is an interesting speculation. Was there any such person active in Indian politics? Anyway, Churchill was not strong on economics. He was late 19th Century liberal who believed in some state intervention in the economy, but did not have well-thought-out views on economics.

    Nehru was a mixed bag, and preserving democracy and the rule of law was a huge achievement. And, of course, as everyone agrees around here, his economic policies were a form of cancer that destroyed the lives and potential of millions of people, and weakened India ever since. Unfortunately, there was very little alternative thinking going on anywhere in the world. After all the Mont Pelerin Society first met the same year India got its independence. Hayek and Friedman were on the outer fringes of respectable thought. It is not surprising that Nehru did not adopt policies which were consistent with their views.

    Sadly, ideas have consequences.

    Comment by Lexington Green — July 26, 2006 @ 3:21 am

  32. Hello Lexington Green:
    I agree with your approach. All retroactive appraisals of leaders and thinkers must be framed in the era and the prevailing knowledge of their times. How would you compare and contrast JFK with the benign Churchill you described? JFK was a romantic, too, about America’s paternal responsibility to the less “fortunate” nations of the world and almost Bush-like in his naive hope that America had to safeguard democracy in places such as Vietnam. Iraq, anybody? Nehru was also a romantic, a “visionary” who believed that Asian nations must carve a non-aligned identity of their own (meaning not aligned with either America or Russia). What he should have done, again hindsight is 20/20, is stick to the knitting, solve problems at home and forget about Asian aspirations.

    Comment by Floridian — July 26, 2006 @ 4:24 am

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    In business, information is king. Whether it is about electricity to labor laws or whether there is a competitor moving to Whatcom County, electricity information that is available and could make a difference in the success of a business.

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    Comment by holidays for the family — August 27, 2006 @ 8:43 pm

  36. Hi Lexington Green:

    > Unfortunately, there was very little alternative thinking going on anywhere in the world. After all the Mont Pelerin Society first met the same year India got its independence. Hayek and Friedman were on the outer fringes of respectable thought. It is not surprising that Nehru did not adopt policies which were consistent with their views.

    Well, the US constitution and the bill of rights created the US as a free-market republic dedicated to protecting individual liberty way back in 1787-91, more than 150 years before India’s independence, or the MPS.

    The ideas of liberalism, free markets and individual rights clearly existed, and were even historically proven to dramatically increase human wealth and well-being, well before 1950. It was actually socialism (aka communism) that was a hare-brained experiment at the time, and not even anywhere _near_ the fringes of respectable thought (as it isn’t to this day).

    > Sadly, ideas have consequences.

    Indeed they do. 200 million malnourished Indians and 2.5 million infant deaths from starvation every year are strikingly similar to the consequences achieved by collectivist ideas in Russia or China as well.

    Atanu’s right, of-course – this sad state of affairs is a direct result of democracy unbounded by respect for individual rights. The fault lies not with democracy per-se, but with democracy as an absolute – trumping even individual rights – rather than being properly subservient to the absolutism of individual rights.

    As long as the Indian constitution leaves open the ability to violate individual rights by democratic fiat, it scarcely matters who’s in power. The mob will inevitably trample individual rights, in the process destroying trade, prosperity, and life in horrific quantities.

    Comment by Sovereign Cyborg — November 28, 2006 @ 10:30 pm

  37. Its easier to put blame on others rather than take up the responsibility.Nehru’s economic policies were mostly intended to make India self sufficient so that Indians can satisfy their basic needs without having to depend on anyone fron outside.Of course he never tried to create a country with rich Indians.He believed in achieving socialism rather than go for a capitalist economy.But people lost their faith in socialism by the fall of Soviet Union.But its true that his short-sightedness prevented him from seeing the mutual benefits of co-operation in trade with other countries.Here in this world no nation can survive without the help of others.Nehru’s ideas were more good in papers than in practice.But that should not make him an easy target for such harsh criticisms since he was one of the few leaders of India who thought of his own nation more than about himself.

    Comment by voice — September 1, 2007 @ 10:04 am

  38. Its not surprising for a person like Nehru educated in cambridge in the early thirties (at a time when guys with intermediate qualification become civil servants)makes him undenialbly the most intellectual person the country has seen during that time. Motilal, his glamarous anglicized father (imagine what anglicized means in 1930)sponsored all his plush houses, cars and prpoerties for meetings of congress party on a carefully designed startegy to make his beloved son the heir apparent to congress. So even by todays standards we are not as intellectual and rich as Nehru. Being a Kashmiri Pandit, intelligence and cunning are something thats in his genes. To quote from “Inspite of the Gods” by Edward Luce Nehru and his carpet-baggers went to the extent of favouring the minorities by the length of their beards. His community centric aka “secular” laws have evolved into a state of affairs well-predicted- a divided country that could be manipulated anytime on any pretext giving congress and his dynasty the perfect gorund to remain in power. while nehru created the laws of the state to appeal to individual communities, his daughter screwed up the last vestiges of all make believe good things that the country hoped to see. I was shocked to note (in the same book) that Rajiv Gandhi (of course genes speak) went to the extent of reversing a ruling of supremene court on one lady named shah bano, who was to get an alimony from his husband and this angered the hard line imams, who were later pleased through a change in the law that made muslim personal law overridding the consititutional rights of women.

    Well when we have leaders who can think so dirty, downright dirty, its just a plain waste of time to even discuss about them. I only wish Nehru too were assasinated like his brethern. The only hope comes from God or good samaritans. Hail this country. We made everyone rich. Had the British been there till now we would have become atleast as prosperous as South Africa today.

    Comment by Loknath — September 4, 2007 @ 11:39 am

  39. My theory is that the Western powers did us in. Consider …

    1. India is already the largest gold reserve in the world (http://2ndlook.wordpress.com/2007/11/10/india-the-worlds-richest-economy/). The west was using paper currency to dominate the world. India has been reputed to be sink of precious metals in the world for 2000 years.

    2. Nehru distrusted (due to a 1930′s run-in) Indian industrialists and businessmen. Hence, any anti-industry suggestion made (even by the west) was welcome.

    3. Thus for 50 years Indian consumption for gold was controlled – which has given the west and the Chinese a major advantage. (http://2ndlook.wordpress.com/2007/11/26/china-bullion-gold-silver-and-silk/)

    But never mind .. Indian brains will get over it … more important is the safety aspect … (http://2ndlook.wordpress.com/2007/11/15/sovereign-gold-how-safe-is-indian-gold/)

    2ndlook

    Comment by Anuraag Sanghi — November 26, 2007 @ 4:52 pm

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