At the end of July 2012, India experienced an electrical blackout that affected more than half of that country.  This event raised serious concerns about India’s ability to sustain its economic growth.  Given the rhetorical attacks against capitalism and selfishness led by President Obama, this Indian blackout offers evidence for the consequences of a life without capital, as accepted without principles by American Pragmatist politicians.

Political Causes of Failure

Based upon reporting in the Washington Post, there are 6 political causes of the Indian blackout that should be familiar to Americans:

1. The legacy infrastructure requires significant capital investment and expansion.
2. Government officials create debilitating obstructions with their systemic corruption.
3. Public institutions perform badly due to ineffective management, and operate within political constraints that prevent reasonable actions.
4. Weak law enforcement fails to protect property rights.
5. The regulatory burden is stifling industry, including arbitrary environmental regulation that starves producers of resources.
6. The prices have lost their connection to reality due to political manipulation, including subsidies, free electricity for farmers, and price controls.

Source: Simon Denyer and Rama Lakshmi, “Power Fails in Half of India”, Washington Post, 8/1/2012, A1.

The Importance of Price

The Post’s report included a particularly relevant quote from JPMorgan economist Sajjid Chinoy, “When you don’t have economically viable pricing, you will not have economically viable power generation.”

Let’s consider that quote from Chinoy and the list of political causes in the context of M. Northrup Buechner’s observation:

There is no market where nonobjective prices are the rule, a market where a rational grasp of the facts is consistently absent.  In the modern world, such a market could not survive.  If businessmen always set the price too high, no one would buy.  If they always set the price too low, rational buyers would purchase all their goods and they would have nothing to sell.  Nonobjective prices, that is, prices independent of the cost of production and/or the value to customers and/or the competitive conditions of the market, are self-eliminating.  They eliminate the businessmen who set such prices.  — Objective Economics, pp. 144-5.

When government breaks the bounds of its legitimate purpose (the protection of individual rights by subordinating retaliatory force to objective law) and acts in the economy to direct business enterprises, the same consequences of nonobjective prices applies to it; in the long run, guns, statutes, and regulations do not invalidate that causation.  Thus, the problem for India is more than maintaining its growth trajectory; it is the risk of economic decay, losing the improvements to the quality of their lives, and the consequences of weakening the government.

Lesson for Selfish Citizens

For the US, these political causes of the Indian blackout exist within the American political system, because we confuse the idea that “we must do something” with “government must do something” to the destruction of our freedom of association.  Given the relative strength and dynamism of the American economy, we can miss the evident costs of this error; however, in examining other countries, the consequences are more obviously evident.

The lessons from India’s blackout should raise several questions related to government intervention in the electric utility industry:

1. Where will the capital come from to repair and extend our infrastructure if the producers are subject to government limiting their profit?
2. Can producers produce if they are burdened with pre-emption, direction, regulation, and control from government officials that have political agendas?
3. As the existing regulatory burden brings existing power plants offline, from where will the lost production capacity come?
4. As nuclear plants are being decommissioned in Japan and Germany, how will increased demand for alternatives impact international fuel prices for energy production?
5. Given the poor performance of promises from politicians, can we trust them to deliver electricity, or would we be smarter to trust in those selfish businessmen, who will bankrupt if they fail?

Instead of new promises of government reform to alleviate the failures from past government policies, both America and India need to refocus government on protecting individual rights and liberate businessmen to produce the values that improve the quality of our lives.