01 / 05
India, a Story of Progress

Blog Post | Economics

India, a Story of Progress

The world should take note of which principles brought freedom and prosperity to India.

The 76-year story of modern India is one of the greatest stories of progress in history. At the time of its independence in 1947, it was a mostly agricultural economy of 340 million people with a literacy rate of only 12 percent and a life expectancy of only 32 years. Today, it has the fifth-largest economy by nominal gross domestic product (GDP) and third largest by purchasing power parity. In his book “Enlightenment Now: The Case for Reason, Science, Humanism, and Progress,” Steven Pinker highlights six key areas of progress: life, health, wealth, safety, literacy, and sustenance. In every one of these metrics, life in India has significantly improved over the years.

Self-Sufficiency Is Self-Destructive

Since independence in 1947, India suffered the consequences of socialist ideals. In a quest for self-sufficiency, the government played a heavy role in the economy. Under Prime Minister Jawaharlal Nehru, India pursued Soviet-style “Five Year Plans,” intending to turn India into an industrialized economy. From 1947 to 1991, the government owned most key industries, including steel, coal, telecommunications, banking, and heavy industry. India’s economy was closed to foreign competition, with high tariffs and restrictions to foreign investment. For example, the import tariff for cars was around 125 percent in 1960. The policy of import substitution aimed to produce goods domestically instead of importing them from abroad. In reality, massive waste and inefficiency resulted, as Indian businesses were protected from international competition.

Furthermore, India’s private sector was heavily constrained. Overregulation and corruption stifled the business environment, and subsidies and price controls disincentivized production, leading to market distortions and fiscal deficits. The government required industrial licenses for the establishment, expansion, or modernization of industries, causing bureaucratic barriers and corruption. This environment tended to harm small businesses at the expense of large corporations, as large corporations could better cope with the complex bureaucracy. The period was often referred to as the License Raj, comparing the extent of control of the industrial licenses to that of direct rule by the British Empire before Indian independence.

Sustenance, Health, and Life

In his 2016 book, “Progress: Ten Reasons to Look Forward to the Future,” Johan Norberg showed how these problems impacted daily life. When Norman Borlaug invented new high-yield wheat, India was facing a threat of mass starvation. Despite that, Indian state monopolies lobbied against both food and fertilizer imports. Fortunately, Borlaug was able to bring through his innovations. In 1965, yields in India rose by 70 percent.

From 1948 to 2018, the number of calories per person increased by two-thirds, growing from 1,570 to 2,533. For reference, the recommended healthy number of calories per person is 2,000 for a woman and 2,500 for a man. The average Indian now no longer suffers from undernourishment.

This achievement is even more remarkable when one considers the growth of the Indian population, which added a billion new citizens between 1948 and 2018. As well as having a greater population, Indians began living longer, with life expectancy more than doubling between 1947 and 2022. Furthermore, fewer children were dying—infant mortality fell dramatically between 1960 and 2022. Many children previously suffered from malnutrition. Parents could now watch their children grow up and have children of their own.

Wealth, Safety, and Literacy

However, problems in India remained. The License Raj continued to strangle the Indian economy in the name of protectionism. In 1978, the economist Raj Krishna coined the term the “Hindu rate of growth” to refer to slow economic growth of around 4 percent per year, which was prevalent in India from the 1950s to the 1980s. But Krishna was incorrect. The slow rate of growth had nothing to do with Hinduism or factors unique to India. Instead, India’s growth was low, because of the restrictive policies of the socialist government. As soon as India removed the restrictions to competition and commerce, it began reaching growth rates of between 6 percent and 9 percent each year.

The economic liberalization of India was prompted by an economic crisis in 1990. India, having borrowed heavily from international lenders to finance infrastructure projects, was facing a balance of payments crisis and had only two weeks until it would default on its debt. A new government under Prime Minister P. V. Narasimha Rao abolished the License Raj, removing restrictions for most industries and foreign investment into Indian companies. Restrictions on foreign technology and imports were scrapped, as were subsidies to fertilizer and sugar. India flung open its doors to the world, embracing competition in both imports and exports. Indian companies now faced foreign competition in the domestic market but also had the entire world market to sell to.

New industries sprung up, with India developing competitive industries in telecommunications, software, pharmaceuticals, biotechnology, research and development, and professional services.

The result was a dramatic increase in the standard of living for ordinary Indians. The economy flourished as foreign investment flooded in. The innovating spirit of ordinary Indians was unleashed. Between 1993 and 2021, access to electricity went from 50 percent of the population to 99.6 percent. The literacy rate improved from 48.2 percent to 74.4 percent. This is even more remarkable considering that India added extra 600 million people during that period.

Having access to a microwave, refrigeration, and electric lighting are all amenities that we take for granted, but these conveniences are relatively recent for the average Indian. A virtuous cycle of more educated, well-fed citizens creates greater innovation and prosperity. It is also correlated with less violence, with the homicide rate falling by 48 percent between 1991 and 2020.

Absolute poverty also has been falling. In 1987, half of the Indian population lived in extreme poverty. By 2019, this figure had fallen to 10 percent. Granted, there are still issues in India. Millions of people live in slums, and poverty remains a problem. However, it is worth appreciating just how far India has come.

As the Indian economist Gurcharan Das says about his country’s progress in the documentary “India Awakes,” “The principles that brought so much prosperity and freedom to the West are being affirmed in a country that is in the East.”

These principles are that of a market economy, openness to innovation, and a favorable attitude to commerce.

Life, health, education, and sustenance have all measurably improved. Violence and poverty have declined. Progress has occurred, and the world should take note.

Blog Post | Infrastructure & Transportation

The Race to the Sky: How Competition Pushes Humanity Forward

Cities could still be growing quickly upward, but regulations are limiting their growth.

“I would give the greatest sunset in the world for one sight of New York’s skyline.”

—Ayn Rand, The Fountainhead

The story of how the Empire State Building came to dominate Manhattan’s skyline—defeating 40 Wall Street and the Chrysler Building for the title of the tallest building in the world—is an illustration of the power of competition and innovation.

In 1929, the successful businessman George Ohrstrom hired architect H. Craig Severance to design 40 Wall Street. Severance was a well-known architect in New York City and together with William van Alen had built amazing constructions, such as the Bainbridge Building on W. 57th Street and the Prudence Building at 331 Madison Avenue. Van Alen was an innovator and a revolutionary who often challenged the classical and Renaissance styles that had influenced most American cities since the beginning of the 20th century. He often ran into problems with clients who rejected his modern styles. Severance, worried about losing clients, decided that he no longer needed Van Alen’s partnership, and they ended their business relationship in 1924. In 1929, Walter Chrysler hired Van Alen to design a monument to his name, the Chrysler Building.

Competition Incentivized Innovation

In April 1929, Severance learned that his former partner was designing a structure of 809 feet. Ohrstrom and Severance, worried about falling behind, announced that they would add two additional floors to their original design so that 40 Wall Street would end up with a total height of 840 feet. That same year, Empire State Inc., led by former General Motors executive John Jakob Raskob, entered the race—putting pressure on Severance and Van Alen. To keep pace with the other two projects, architectural firm Shreve, Lamb & Harmon and builders Starrett Brothers & Eken accelerated the construction process. According to architectural historian Carol Willis, the framework of the Empire State Building rose four and a half stories per week due to an A-team design approach in which architects, builders, and engineers collaborated closely with each other.

Troubled by both Severance and the Empire State project, Van Alen designed the famous chrome-steel art deco crown for the top of the Chrysler Building and a sphere to stand on top of the crown. The sphere was built inside the crown, hidden from the public, and it was never announced to the press or explicitly mentioned. On the other hand, Severance modified his design one more time and asked permission to add a lantern and a flagpole at the top of the tower, increasing the height by 50 feet. Severance planned to have 40 Wall Street reach the 900-foot mark to secure its place as the tallest building in the world.

On October 23, 1929, the sphere of the Chrysler Building was lifted from the inside of the crown, reaching 1,046 feet and surpassing the final height of 927 feet of 40 Wall Street. The crash of Wall Street on October 28 distracted the press from the trick played by Van Alen, and it was not reported immediately. When Severance found out, it was too late to change his design—40 Wall Street held the title for one month from its opening in the first week of May 1930 to the opening of the Chrysler Building on May 27. The Chrysler Building held the title for only 11 months until the Empire State Building was completed in 1931 and became the new tallest building.

Regulations Limit Us

The Empire State Building held the title of tallest building in the world for 40 years, and it was built in only one year and 45 days. Bryan Caplan, professor of economics at George Mason University, believes that excessive restrictions slow construction today. Regulations such as height restrictions prevent cities from going up. Humanity now has better technology than in the time of New York’s race to the sky, but getting permits to build upward is extremely difficult. Excessive restrictions also generate artificial scarcity, which is slowing the growth of cities and making it difficult (and expensive) to live in them. Cities could grow upward, but regulations limit their growth.

However, we continue to see competition in many industries; technology companies fighting for the dominance of artificial intelligence are creating better and more efficient tools. The race between SpaceX, Blue Origin, and Virgin Galactic is improving the development of innovative technologies. Soon we might even have commercial flights to the moon. History has shown that when brilliant minds have freedom to compete, humanity moves forward.

Blog Post | Financial Market Development

The Promise of Cryptocurrency | Podcast Highlights

Chelsea Follett interviews Jack Solowey about the potential benefits of cryptocurrency and the regulatory challenges it faces.

Listen to the podcast or read the full transcript here.

Let’s start with the big picture. What is cryptocurrency? 

Cryptocurrency is an application of blockchain technology that leverages cryptography and game theory to create public digital ledgers that are highly secure and highly resistant to tampering. In its best form, cryptocurrency could replace the traditional balance sheets at institutions like banks and brokerages with this open distributed ledger. You’d have something like a bank account balance, but rather than being managed by a centralized intermediary, it’s run by computers all over the world that are incentivized to maintain the database and check each other’s work.

What are some of the benefits of cryptocurrency? 

Crypto is relatively young, so a lot of the benefits are potential benefits. However, we do already see use cases around the world.

Vietnam is one example. The blockchain analytics firm Chainalysis publishes an annual survey of the leading countries for crypto adoption, and Vietnam has led that list for a couple of years. An interesting corollary is that 69 percent of Vietnam’s population lacks access to a traditional bank. I think it’s reasonable to say that cryptocurrency is filling that need.

Can cryptocurrency be a hedge against inflation? 

Ultimately, this is an empirical claim that will have to be evaluated over time. There was some thinking initially that Bitcoin could be an inflation hedge because it has an ultimate cap on its supply. According to the protocol, there will only ever be 21 million Bitcoin minted. But that hasn’t borne out empirically, or at least hasn’t borne out yet.

With that said, there are places around the world where we’ve seen both national currency depreciation and relatively high crypto adoption or spikes in crypto adoption around national currency depreciation events. Examples include Turkey, Nigeria, Kenya, Argentina, and Venezuela.

There’s also a class of crypto token known as stablecoins, which are designed to be pegged to the value of another asset, for example, fiat currencies like the US dollar. Stablecoins have actually been growing in popularity in some of the same countries I just mentioned as a way to access the US dollar.

What about the potential of blockchain technology to combat censorship or resist authoritarianism? 

I think it’s helpful to look at the tactics that are used by the totalitarian regime in George Orwell’s Nineteen Eighty-Four. In that story, control was often a matter of changing and deleting the historical record. The thinking is that if there was no evidence of a free society, the idea of freedom or liberty could be extinguished.

And as we know, totalitarian regimes are not mere fiction. The Cato Institute recently awarded the Milton Friedman Prize to Jimmy Lai, who was the founder of the pro-democracy Apple Daily Newspaper in Hong Kong. When the central government in Beijing applied the draconian national security law to Hong Kong and raided the Apple Daily offices, civic and cyber activists were able to maintain a record of thousands of Apple Daily newspaper articles on a blockchain called Arweave. That is one example where blockchain technology thwarted the Orwellian authoritarian ambition.

What are some of the challenges or potential drawbacks of cryptocurrency? 

Like all financial instruments, crypto can be abused by bad actors, who can use cryptocurrencies to fund terrorist activity and trafficking. However, it’s important to keep this in perspective. Even high estimates of crypto-related illicit activity are an order of magnitude smaller than the UN’s estimate of, for example, total global money laundering each year, and law enforcement agencies in the US acknowledge that crypto has a relatively small role in crime when compared to traditional financial technologies.

Another common critique is that cryptocurrency technology is bad for the environment. 

It’s worth distinguishing here between the two mechanisms underlying major blockchains. You have Proof of Work, which helps secure the Bitcoin network, and because it’s compute-intensive, it’s also electricity-intensive. However, there’s also a different mechanism known as Proof of Stake, which has been implemented by the Ethereum blockchain, the second biggest crypto network by market cap. Proof of Stake reduces energy consumption and carbon footprint by over 99 percent. So, some of the critique needs to adapt to the changing nature of the technology.

But I also think it’s important to keep in mind that this critique begins with the assumption that cryptocurrency is not worth its environmental footprint. I think the role of policymakers is to address downside risks, not to assess the benefits. Regardless of one’s preferred environmental policy, it should apply uniformly and should not single out one specific class of technology.

If cryptocurrency is overregulated, what could be the possible impact of that on the average American? What’s the potential loss there? 

If our policies make the US an uncommonly inhospitable place for crypto, we could lose both the potential gains from this class of technology and the competitive pressure that these innovations put on traditional institutions to improve their own products and services. Crypto is already a very useful tool for sending payments across borders quickly and cheaply.

There are two big problems with how regulators have been approaching this space. One is regulatory ambiguity. Securities laws in the US, at the federal level, are almost 100 years old. It’s not hard to conceptualize how technologies that began as paper stock certificates and are now being replaced with decentralized global networks could pose challenges to existing regulations.

In the 1990s, the SEC actually had a fairly rational rule-making process to adapt laws to new technologies, what are known as alternative trading systems. Laws and rules can keep up with technology if regulators are willing to make those changes. Unfortunately, in the US, we haven’t seen the SEC take the same rational approach to cryptocurrency.

In fact, we’ve seen a bit of gaslighting, where the agency can ask projects to register under existing laws, and the project will say, “Okay, great. Let’s do it.” And then SEC says, “Well, we’re not really sure how to register your project.” And then, a little bit later, the project faces enforcement actions for not registering. It’s not a rational approach to innovation and financial markets.

As of the time of this recording, what are some of the current policy initiatives around regulating cryptocurrency? What are some of the concerns people are wrangling with?

The US is unique in that we have two capital market regulators, the Securities and Exchange Commission, SEC, and the Commodity Futures Trading Commission, the CFTC. This presents an interesting question about cryptocurrencies: should they be treated as a commodity or security?

To answer that question, my colleague Jennifer Schulp and I hone in on decentralization. Decentralization addresses some of the risks that securities regulation is intended to mitigate, which are known as managerial risks. Basically, are the issuers of an instrument going to have information that market participants don’t have, and could they use that information to gain an edge over market participants? Things like insider trading and information asymmetries through disclosures. But when you have a fully decentralized crypto token project, there is no managerial body with that information. So, at a high level, crypto securities are those that are centralized, and crypto commodities are those that are decentralized.

One wrinkle here is that crypto tokens can begin life as centralized projects but evolve into more decentralized projects over time.

Say regulators get this right and allow people to realize all the potential gains of cryptocurrency. What kind of gains could people see? 

In addition to the potential benefits of faster, cheaper payment methods, cryptocurrency promises a more decentralized internet and financial system. Loans could be issued permissionlessly. In the same way that you put a dollar in a vending machine to get a can of soda, you could have lending protocols that, once you put in the designated crypto collateral, you could take out a loan in crypto without some of the traditional gatekeeping by financial institutions. And that’s just one example of this broader ecosystem.

The Human Progress Podcast | Ep. 46

Jack Solowey: The Promise of Cryptocurrency

Jack Solowey, a policy analyst at the Cato Institute focusing on financial technology, joins Chelsea Follett to discuss the potential benefits of cryptocurrency and the regulatory challenges it faces.

Wall Street Journal | Science & Technology

Amazon Introducing Robotics to Speed Deliveries

“Amazon.com is introducing an array of new artificial intelligence and robotics capabilities into its warehouse operations that will reduce delivery times and help identify inventory more quickly.

The revamp will change the way Amazon moves products through its fulfillment centers with new AI-equipped sortation machines and robotic arms. It is also set to alter how many of the company’s vast army of workers do their jobs.”

From Wall Street Journal.