Capitalism, Efficiency and the Environment

Many years ago, I "interned" at a sugar factory in India. The factory was owned by Uncle V, my dad's college friend. For some reason, I wanted to go see this factory and ended up spending a fortnight there, looking through the plant layout drawings, goofing off in the maintenance shed and learning the difference between various kinds of gears, lathes and such. I am sure Uncle V was confused as to why I wanted to spend my time this way (I was 13) but luckily he didn't question my thinking. This is what I learned.

Uncle V inherited this factory from his father in the early 1960s. It was the era of "License Raj", when the Indian government kept all the "dirty capitalists" on a tight leash. The prevailing thinking was that small-scale capitalism was okay, it was the large-scale capitalism that would destroy the society. Therefore, many aspects of any factory were tightly controlled by the government including vacation time, salary structure, production capacity and such.

At that time, the incoming sugarcane was crushed, then run through a water shower and crushed again, the juice was split into molasses and sugar syrup and the sugar was crystallized with heat from a coal-fired boiler. The sugar was shipped to the distributors and the molasses was shipped to rum makers and the factory made a nice tidy profit. All of the production was sold, the selling price was controlled by the Indian government and there wasn't really any competition. Most people would have enjoyed the status quo. But Uncle V was not content. He was an engineer at heart and he pushed the people at the factory to make improvements, hoping to increase production or reduce costs.

The very first improvement was to install a third crusher, thus increasing the juice yield. More importantly, the bagasse (the fibrous cane part of the sugarcane) became easier to burn due to less sugar and moisture left behind. Earlier bagasse was simply discarded as waste but now, it started being used for firing the boiler. This made operating the factory cheaper because the coal needs went down dramatically. Another improvement was the installation of a heat exchanger. This is a wonderful piece of machinery that reduces energy needs by pre-heating the incoming water with the heat from the outgoing waste hot gases.

Now, with the new heat exchanger installed, the process improved so much that bagasse started to pile up! Rather than simply throwing it away (as it used to be done earlier), someone figured that it could be put to better use. In the end, the bagasse was used to make cardboard, setting up a small sister factory next door.

The fact to remember out of all this is that Uncle V was not doing this out of the goodness of his heart. He didn't have any pro-environment protesters at his doorstep demanding that he reduce his coal usage. I am sure that in those days he hadn't even heard of global warming. He did all this to improve the profitability of his factory. He did it to save money.

Today, many commentators and politicians are portraying green technology as a zero-sum game. They think that becoming more green can only mean more costs. However, this is not true. Everything a factory consumes costs money and it is financially smart to use the inputs more efficiently.

Last I heard, Uncle V was trying out a bonus program that gave sugarcane growers more for their crop if the sugar content in the sugarcane was high. I am sure this would create a whole set of incentives for the growers that would help Uncle V improve the efficiency of his sugar plant...

Postcard from Europe

Back in geography class in school I learned that Italians spoke Italian, the Spaniards Spanish, the French French and the Germans German. The Dutch spoke Dutch and the Danes Danish. Each country was a homogeneous place where the people were "naturally" of a single culture and that is why Europe had fractured into the shapes and sizes as it had, each piece taking with it its own linguistic, cultural and ethnic heritage.

But two countries made me wonder - Austria (why isn't it part of Germany) and Switzerland (why do people there speak so many different languages).

A few years later, when I was actually living and working in Germany and traveling like a madman, I discovered that my teacher had lied!

Well, not exactly. She had merely glossed over many of the more inconvenient details. You see, despite what people might say, European countries are actually an accident of history. Just in the 20th century, European borders have shifted around dramatically and if you take into account the movements of peoples and rise and fall of states and empires in the last 2000 years, you would come up with a dramatic and utterly confusing story.

Let us start with Germany, sitting smack dab in the middle of the continent. It was not even a country till 1871 when Otto von Bismarck realized that he needed to create a unified state under Prussian control in order to project power over the neighbors. But the state that was created is very different from the re-unified Germany as it exists today. Alsace and Lorraine are in France, a little slice is over in Belgium, another slice in Denmark and large lands are in Poland and Russia.

Italy was created partly due to the hard work of Garibaldi and his redshirts from a mass of kingdoms and principalities. After World War I, a piece of Austria (called Sued Tirol) was lopped off and tacked onto Italy where it is called Trentino-Alto Adige. There are many such adjustments all over the European map. Perhaps the most blatant of them all is Poland, which has been created, destroyed, sliced, shaped and fussed over with by all the major and most of the minor players. If you compare the maps of Poland before and after World War II, you would think that someone put it on a flat-bed truck and drove it westwards!

So, where am I going with all this? Well, it is quite common to assume that the national boundaries haven't shifted and that each country is basically an indivisible unit of ethnic cohesion. The only exceptions being the "artificial" countries such as Yugoslavia and USSR which have exploded once the strongmen ruling them died or countries that have been shaped by immigration such as USA and Canada. But that is not the case. You can go anywhere in the world and find that most boundaries have been drawn by political and military realities at various times.

Rather than yearning for ethnic, linguistic and cultural uniformity, we should realize that such entities have never existed and never will...

A new president at the World Bank

By now, the Paul Wolfowitz saga is all over the news. He has resigned from the Presidency of World Bank over either his own ethical lapses (if you listen to his critics) or because the entrenched bureaucracy hated this anti-corruption crusader (if you listen to his supporters). Either way, his last day is 30 June 2007.

So now, 2 years after nominating Wolfowitz to the job, Bush has another stab at nominating someone to that position. Traditionally, the US President nominates an American for the job. However, the Board of Governors still has to approve the nomination and US does not have enough votes to simply ram the nomination through.

Bush and World Bank are both at crossroads. Bush has 20 months left in office and his time in the White House is now deeply intertwined with the Iraqi mess. He, just as everyone else, wants to leave something positive behind. World Bank, created as a conduit to help western Europe get back on its feet after WW2, is also looking for a mission for the future. During the Cold War, its monies and energies were largely frittered away in unsound projects that helped dictators more than anyone else. As a result, many critics are calling for a world without World Bank.

To break from the past, the two major goals of World Bank these days are fighting poverty and fighting corruption. These two scourges are devastating many poorer countries, hindering their growth and, to make matters worse, fueling large-scale illegal immigration to many richer countries which are unprepared or unwilling to take them. Bush can help on all these fronts and help US reduce illegal immigration by picking the right person to direct the energies and the treasury of World Bank to fight these two problems. Of course, the impact of this policy shall not be evident in the short term but it can create a lasting legacy that George W. Bush can be rightly proud of. Now the question is who to nominate.

Bush has had a troubled 2007 so far. His appointments seem to be ideologues who do not have a good grasp of their responsibilities. The Alberto Gonzales affair has primed many people to automatically suspect any nominee for the World Bank job. In such a hostile climate, Bush does not have a lot of room to maneuver. If his nominee is seen as unacceptable (again, many are already espousing such a position, even before anyone has been announced), there is a good chance that this American-on-top tradition may come to a quick end. While I may be a dyed-in-wool liberal, I also feel that a single misstep should not kill a tradition. So, I hope Bush confounds his critics by doing something audacious. I have a few suggestions.

First, Bush could go with tradition and pick an American but from the other side of the political spectrum. Pick someone who has experience as a leader, had an easy time with international agencies and who can see the long-term positive impact on US and the world by fighting poverty and corruption. After all, this is not an academic position. World Bank needs to become more focused on its goals and deliver some results. Richard Holbrooke comes to mind as do Al Gore and Bill Clinton.

Or, Bush could modify the tradition - Choose a non-American. Tony Blair, the British prime minister, is resigning from his current job on 27 June, so he would be available. Jose Maria Aznar, the ex-prime minister of Spain, has impeccable conservative credentials. If he is keen to tackle poverty and corruption, he can help the Spanish government and people by reducing the influx of desperate illegal immigrants into Spain. Of course, Bush could try to convince Nelson Mandela but he is likely to say no. Shashi Tharoor, the loser in the race for UN Secretary General a few months back, could be a wild and crazy but useful pick. An even more wild pick would be Bono, who has been campaigning for more help to poorer countries.

Whomsoever Bush chooses, he has to ensure that this person would be an effective leader in the multilateral environment of World Bank. A "My way or the highway" person would not only cause a bigger mess and interfere with Bush's legacy, it may provide the right ammo for those who are unhappy with American leadership lately. In today's world of fragmented alliances, it is very important to find someone who can rally the troops at World Bank and focus on the objective at hand.

Having said all this, I am afraid that the Bush advisers would steer him towards a "normal" approach that has all the hallmarks of mediocrity. But this is not the time to be timid. Safe and bland choices do not a statesman make...