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Property rights and land acquisition

The following article was published in Freedom First, December 2008.

Sanjeev Sabhlok

This month I’d like to begin by exploring the concern a reader has raised about the urban governance model I had suggested in my November article. Noting that ‘elected representatives are equally corrupt and non-accountable’ and that ‘persons of integrity stand little chance of getting elected’, the reader thinks that the model I proposed won’t work, at least not before other things happen first, such as speedy trials of corrupt people.

It is true that a large number of interconnected reforms are needed in India. But to avoid getting lost in this complexity, I suggest that we look at each area in isolation and determine the best policy for that area. We want policy compatible with freedom; policy that will deliver accountability while being mindful of human nature. This set of best policies can then become a blueprint of reforms that we can aim to, together, deliver to India through political organisation.

The local governance model I proposed last month works without corruption in many parts of the world. Therefore I can’t see any major reason why it won’t work in India. Let us insist on local governments where council CEOs can be hired and fired by elected representatives. Separately, let us explore policies to expedite court trials of the corrupt. I will review the policies of justice in a separate article.

Origin of property

The defence of our property is critical to our continuing freedom. Freedom and justice are of one piece, and, as David Hume noted, ‘[t]he origin of justice explains that of property’. In each of our transactions we leave a memory of relevant accountabilities and attributions. Attribution, namely, who it is that owns a particular consequence, determines the ownership of property during and after a transaction. Some transactions leave a physical residue we call goods; others, being a service or intellectual property leave behind the memory of an experience or thought.

Socialist aversion to property

Socialists differ sharply from liberals in their conception of property. The socialists’ main aim is to achieve economic equality by robbing Peter to pay Paul. They aim to do this by abolishing private property and vesting it in the state. But even if they succeed in abolishing private property for an instant, new private property and inequality springs to life like a Houdini springing out of his cage. A pen, paint brush, or a good voice can generate untold wealth and upturn utopian socialist goals.

India’s initial Constitution was largely liberal and allowed for substantial property rights, but socialist Nehru soon enacted land ceiling legislation to confiscate lands above a certain size, and sheltered these illiberal laws under the Ninth Schedule of the Constitution. Later, through the 25th Constitutional amendment of 1971, Indira Gandhi removed the Constitutional requirement to compensate people for their land compulsorily acquired by government. An unspecified ‘amount’ was now deemed sufficient in lieu. State theft was thus fully institutionalised.

The biggest blow to property rights was administered by the Janata Party, a rag-tag bunch of socialist factions, some of which have later formed the BJP. The Janata Party abolished the right to property through the 44th Constitutional amendment of 1978. In the past, Article 19(1)(f) had guaranteed Indians the right to acquire, hold and dispose of property. This was repealed. We therefore have no Constitutional property rights today. Property is merely a legal right revokable by simple majority in Parliament.

The utopian system of socialism always attracts the most evil people. Even as they have publicly pursued populist socialist policies to undermine property rights, our socialist politicians have exported unimaginable public wealth from India into their Swiss bank accounts. This fraud has been facilitated by not maintaining accurate and transparent land records. The free West, on the other hand, has developed technologies to strongly protect people’s titles in land, which has facilitated new investment and economic success.

Compulsory land acquisition and land re-zoning

The main reason we form a nation through a social contract is to maximise our security and freedom. National security is, in many ways, a precursor of freedom. Where national security so requires, we agree to exchange our property rights in a particular piece of land with comparable land elsewhere. So, for example, if I own land on top of a hill but the army needs to build a fort on it, then I agree to hand over my land in lieu of just compensation. Similar arguments apply to major roads such as the Golden Quadrilateral which can expedite troop movement in India during a crisis, or to roads in border areas.

But what about compulsory acquisition of land for ordinary economic infrastructure: things like small roads, local dams or sewers, or land for schools and universities? And what if a local government rezones our land from residential to non-residential, potentially reducing its value? Are such actions of elected governments compatible with our freedom? Yes – they are, provided a genuine public interest is met and just compensation paid.

Validation of the public interest can be done through local governments through public consultation including small referendums, in addition to the necessary declarations of public interest from the state or central governments. Compensation can then be determined by an expert panel headed by a retired High Court judge to ensure that not only taxpayers get good value out of this acquisition but the property rights of those whose land is being acquired or re-zoned are protected. The panel should, in the first instance, aim to acquire land only though voluntary consent.

Our current methods to determine compensation (‘amount’), being primarily based on figures from registered sales, are flawed since sale prices are under-reported in India to save stamp duty. In addition to this basic information, innovative ideas including those from experimental economics should be used to assess values. Economic modelling and experimental markets can assist in arriving at the optimal value proposition for everyone. In principle, if a net present value of Rs. 10 is created from the infrastructure, then up to Rs. 5 should be available for sharing with those whose land is being acquired, either as a one-off payment or a long-term annuity.

What about compulsory acquisition of land for purely private purposes – say, when Tatas want to build a factory in Singur? That is clearly out of bounds: coercive acquisition of land to benefit the shareholders of Tatas or for any other purely private purpose is repugnant to a free society. Game playing may well occur between Tatas and its competitors in consequence, potentially preventing the quick private acquisition of land, but that cannot be used as an excuse to use the state’s coercive powers. Markets must find their own solutions to competition.

Freedom Team of India

The above discussion has barely scratched the surface of property rights and policies to protect these rights. But I do hope that such discussions will sufficiently motivate you to consider joining the Freedom Team to deliver such policies to India (see The point to remember is that the policies of freedom won’t get adopted and implemented in India with out a major political battle to be fought by the liberals. Let us ‘Arise, awake, and stop not till the goal is reached’ (Vivekananda).

Contact Sanjeev at sabhlok AT yahoo DOT com



Knowledge problem’ of land debate by Vipin P Veetil LiveMint, 6 June 2011

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India’s centralised approach to urbanization

The following article was published in Freedom First, November 2008.

Sanjeev Sabhlok

The Freedom Team of India is trying to bring together 1500 like-minded liberals willing to contest elections as a coherent group from 2014 onwards. The Team aims to ultimately offer the Indian people a choice both of good candidates and good policy. As the Team continues to grow, albeit slowly, I want to start discussing issues which could inform the policies offered by the Team. I begin by looking at urban policy.

Productivity gains from urbanisation

In 1776 Adam Smith wrote about division of labour as the major driver of productivity in free societies. While the assembly lines seen in factories are a good example of this division of labour, specialisation is now an even more widespread part of modern life. Another driver of productivity, highlighted by Alexis de Tocqueville in 1835, is social capital arising from the vibrant associations and networks of like-minded people. Both these drivers of productivity require people to live close together, and thus form the motivation for urbanisation. The average Indian, however, has not yet benefited from these productivity-enhancing features, with only 28 per cent of Indians living in urban areas today, compared with 44 per cent of the Chinese, 78 per cent of the Americans, and 86 per cent of the Australians.

Before we examine how urban areas can be managed to cope with increased urbanisation, we should ask whether it is feasible for a country like India to live predominantly in cities? How is it possible, we wonder, to feed a huge urban population?

The answer is that a relatively small population should be able to produce all the food we need after we reform our agricultural policies. Such reforms should lead to increased mechanisation and productivity. Since agricultural reforms will require a separate discussion, let us, for the moment, assume that it is possible to increase agricultural productivity to feed up to 600 million additional urban dwellers. In addition, let us assume the existence of good education and health policies with the result that rural migrants to urban areas stand a real chance of being productive. We also assume incremental and organic growth of urbanisation, not a forced approach.

Local governance at the heart of urban reform

We all know that today, even with our extremely low levels of urbanisation, our urban areas are in a bad shape. My sister owns an IT company in Delhi and travels all over the city daily. She was complaining the other day to me that it now takes her two hours to cover the distance which took her an hour ten years ago. Such congestion not only hurts businesses but also reduces social capital as it becomes increasingly difficult for people to associate with each other.

So how can we start improving our urban areas? We need to increase urban infrastructure and improve the urban environment while avoiding the congestion which can quickly reduce the gains from urbanisation. Three principles can inform the governance arrangements for urban reform: good incentives, accountability, and subsidiarity.

The principle of subsidiariaty says that ‘a central authority should have a subsidiary function, performing only those tasks which cannot be performed effectively at a more immediate or local level’. This tells us that state governments must stay out of urban management, which is a local matter. This should be in the hands of local councils that service, say, about two lakh people each. For instance, New York has 51 councils and Melbourne has 28. So Delhi should have 60 councils. Instead, we have mega-municipalities which have little or no local representation and are far removed from ground realities.

For the states to create the third tier of government at the urban or rural level it was not really necessary to amend the Constitution. But with the 74th amendment there can now be no excuse for the states to avoid creating such a third tier. Unfortunately, the states still refuse to do so. Instead, tenured generalist bureaucrats without the foggiest idea of good policy and without any accountability to anyone, are charged today with ‘managing’ our cities using their exaggerated notions of personal wisdom and perspicacity, with no participation from the citizens.

This needs to change. The state governments must create a framework of laws for the local councils to implement. This framework should link urban and rural councils and reduce the dichotomy between these two. The framework must delegate key functions like land planning and zoning, land acquisition, local (third tier) roads and parks, libraries, community halls, and waste disposal to the councils. Food and other inspections should also be dealt with by councils. The state can retain the role of coordinating the records of land use and ownership.

To fund these services, the councils should be empowered to raise land taxes and rates, and to recover unpaid dues from recalcitrant residents. Councils which want to attract wealthier residents will then provide better infrastructure by charging higher rates. Since all the infrastructure needs of urban areas cannot be funded through rates and taxes, the councils should be empowered to issue long-term bonds to fund these needs. Citizens will then be free to pick the council that best suits their budget and preferences. The competition between councils will generally keep the rates low and the services high.

It is important for the councils to have sufficient representation. The ratio of representatives to citizens must be in line with international best practice. For instance, Delhi should have 300-600 elected councillors including 60-odd mayors. Of course, these political representatives would need to be held to account through elections held every three years. In addition, the state government would need to retain a judiciously exercised power to dismiss corrupt councils and order new elections.

To ensure a clear line of sight of accountability, elected councillors would have to be fully empowered to hire the chief executives of their councils on a performance-based contract at market rates, and to fire them for non-performance. This contract should be based on an understanding of the principal-agent problem and the use of the right incentives. These chief executives, in turn, would need to be empowered to hire (and fire) the best professional land planners, environmental scientists and landscaping specialists. This approach, followed in many developed countries, achieves the best results for the community.

Coordination issues, and migration

How will the councils in large cities coordinate their diverse plans? The association of councils will be able to coordinate most issues, including long term plans for the relevant city. The state government can help if asked to. These professionally managed councils will also be able to manage the migrations from rural areas effectively. Since new migrants generate wealth, the councils will likely complete for new migrants by providing relevant infrastructure to make best use of the new migrants’ talents.

In brief, this model of responsive and accountable decentralised government, based on the principles of freedom, will lead India to dramatically better cities and ensure that it can meet the forthcoming challenge of mega-urbanisation and wealth creation.

* * *
As usual, before closing this write-up, I would like to urge you to consider leading
India. Consider joining the Freedom Team ( Write to me.

Contact Sanjeev at sabhlok AT yahoo DOT com

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Unbridled capitalism?

The following article was published in Freedom First, October 2008.

Sanjeev Sabhlok

This month I want to focus on a topic on which great confusion prevails in India: the issue of capitalism. I wrote to an eminent Indian economist seeking comment on my draft manuscript of The Discovery of Freedom ( Without yet reading the manuscript, he wrote to me that “completely unbridled capitalism has rarely been followed. I am not sure whether it should be followed. It needs an overarching architecture based on local culture, traditions, history and legal system, among other things.”

I though this response was unwarranted. My manuscript already discusses the institutions of freedom at great length. So that couldn’t possibly be an issue. We both agree that good institutions like tolerance, democracy and justice are crucial. Thomas Hobbes showed why we need a strong state to defend our life and liberty; capitalism is therefore founded on the rule of law and the enforcement of justice. But I find unwarranted and gratuitous the suggestion about not following “completely unbridled capitalism”. Since this perspective reflects widely held misconceptions, I thought it might be worthwhile to examine it more closely.

Whatever else is true about capitalism, this much is clear that never did John Locke, David Hume, Adam Smith, J.S. Mill, Ayn Rand, F.A. Hayek, or Milton Friedman advocate unbridled capitalism or freedom. It seems that socialists like Marx and Nehru have badly sullied the reputation of liberty. The socialists have repeatedly alleged that capitalism caters to so-called ‘capitalists’ and gives them unbridled powers to exploit the weak. But that is totally false. Philosophers of liberty have always insisted that freedom comes with responsibility and justice. Adam Smith opposed mercantilism and monopolistic industrial interests. David Ricardo wanted more competition and free trade. Adam Smith and J.S. Mill advocated labour unions to face the economic power of the owners of industry.

By repeating lies against liberty long enough, socialists have made it appear that the system of natural liberty encourages corruption and things like the sub-prime crisis. But what are the actual facts? Capitalism begins by looking at human nature. The fathers of capitalism, Hobbes and Locke, pointed out that since human nature is far from perfect, some people will always try to cheat, mislead, and misuse their powers. So if anyone cheats, then systems of justice should catch and punish the cheats. Thus everyone must be held equally to account and no one is to be above the law. In this manner, by ensuring all crimes are punished, capitalist societies are today among the most ethical on this planet.

Capitalism is also a system of continuous improvement. Lessons from events like the sub-prime crisis are quickly learned and such events prevented from happening again. Some events are complex and finding their causes can take time; but overall, capitalism is a political and economic system founded on democratic choice, law and order, and continuous improvement. And since the governance of capitalist societies is built on the system of checks and balances advocated by Montesquieu and Thomas Jefferson, the concept of capitalism being unbridled simply does not arise!

We know from history that the rulers of the West did not like capitalism one bit since it insisted on equal freedom for all. Many people like Locke, Voltaire, Burke and Mill had to fight the vested feudal interests to win freedom for ordinary peoples everywhere.

And so our quarrel cannot possibly be with capitalism. Our quarrel must be with socialism. In socialist societies, based as the spurious concept of economic equality, state-sanctioned corruption is the norm. After having worked in the Indian and Australian bureaucracies for a total of 26 years I can say with confidence that there is almost no corruption in the West today. On the other hand, corruption is endemic in socialist India, where not one politician is completely honest and few bureaucrats completely so. For very fundamental reasons, no society can run ethically on the ideas of socialism. But did this eminent economist express concerns about ‘unbridled’ socialism? No! For capitalism has become the customary whipping boy. Protect the criminal and point fingers at the saint: that seems to be the norm.

Consider and compare, for a moment, how life is defended in India and in the West. Employers in India are, for all practical purposes, unaccountable for the safety of their workers. Hundreds, if not thousands of lives are lost in India every year in preventable workplaces ‘accidents’, even as capitalist societies like Australia have astonishing low rates of worker injury. While working for the safety regulator in the state of Victoria I found that not only are safety laws in the West strongly focused on employer accountability, but negligence is punished severely. If I was a mine worker I would be scared to work in socialist India but would happily work in capitalist Australia where my life is well protected.

So who is really unbridled? Who is really immoral? Is it socialist India – where the governments are totally corrupt, where industrialists are gifted monopoly powers by the corrupt state, and where lives of workers are treated with disdain – or is it the capitalist West where governments wage a systematic battle against all forms of corruption and irresponsible behaviour? Clearly, it is not capitalism but socialism we must be afraid of.

It is time that India looks at the facts. We must not be afraid to use the system of natural liberty which was invented by the Englishman John Locke just because it was invented in England. After all, the West happily takes advantage of Indian thinking by using the number system we invented. So let us listen to what Locke said.

Freedom Team of India
Without security of life there can be no freedom. One of the strongest indicators of a free society is therefore the absence of organised killings of citizens. The endless spate of killings in India is telling us that we are not yet free. When Muslim and Maoist terrorists momentarily pause their mayhem, fascist Hindus appear on the scene to kill Christians; and so on… until it has become hard to distinguish what is happening and who is killing whom. Life and liberty are on the back foot, fighting for survival.

Our education system has clearly failed to imbibe the basic virtues of good citizenship. In a democracy those who have grievances should participate in the political process and change things they don’t like. If that doesn’t work, they can lodge their protest through non-violent civil disobedience. But there is a total absence of good leaders in India today to guide the people. In this situation, if liberals don’t unite to lead India then they or their children could well get caught in the crossfire of misgovernance. Why is it that in 1959 an old man aged eighty could start a major political party (Swatantra Party) and give battle for our liberty, but people today have given up without trying?

I would like to thank those who have written to me in support of the Freedom Team ( For those who have not yet got involved, I suggest that you to do so. Working together, we can defend life, liberty and the pursuit of happiness for everyone in India.

Contact Sanjeev at sabhlok AT yahoo DOT com

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