The Politics of Mutual Plunder
There are other practical consequences of political funding. The sorry history of foreign governmentsâ€™ â€œindustrial policiesâ€ is a matter of public record. And force-feeding government subsidies into technologies that are inappropriate for a given time and place can even lead to disasters.
Remember that Bhopal, India, chemical-plant leak, which killed a couple thousand people and injured thousands more? That was the direct result, not of â€œprivate enterprise,â€ but of the Indian governmentâ€™s industrial policy (as I documented at length in an article for The Intellectual Activist, later reprinted in part in the Wall Street Journal). That chemical facility had no purely economic reason to be sited in the middle of a residential community of poor, uneducated people; that was a political decision. So was the decision to build the plant in the first place, as a â€œjobs for Indiansâ€ programâ€”rather than simply import agricultural chemicals from the U.S. So was the decision to kick out all the U.S. employees of Union Carbide, who were ag-chemical experts, and to replace them with low-educated, technologically unqualified locals, who just happened to be friends and relatives of local politicians. Etc.
At Bhopal, you had an inherently dangerous facility without any trained Western experts present, run by local incompetents. They allowed operations to continue despite the fact that all five redundant safety systems had been broken for months, and warning alarms had been turned off. One of the incompetents let water from a hose leak for hours into one of the chemical tanks, unattended, causing a dangerous reaction. The night-shift employees were all playing cards in the lunch room while gauges indicating rising gas pressure in the tank went off the top of the scaleâ€”allowing a tank pipe to rupture and gush deadly gas into the sleeping community. Rather than do anything about it, the employees all ran.
No, the Bhopal disaster was not the result of American capitalism; no American capitalists were permitted to be present at or in control of the plant. Bhopal was the result of technology decisions and subsidies directed by politiciansâ€”the kind of â€œindustrial policyâ€ that many, including my correspondent, now wish to impose upon our whole energy industry.
Robert Bidinotto has found a copy of the version of the article that was published in the Wall Street Journal:
The Politics of Mutual Plunder (updated)
Clarification on the Bhopal disaster -- The facts constitute a far greater indictment of the Indian government than my 23-year-old recollection of my original article, above, suggests. Here's from my July 19, 1985 article, "Bhopal: The Fruit of Industrial Policy," in The Intellectual Activist, as excerpted by the Wall Street Journal on Dec. 3, 1986:
The Indian government had its heavy hand on every aspect of the Bhopal plant, from its design and construction to its eventual operation. Initially, the facility merely imported raw pesticides, such as one called Sevin, and then diluted, packaged and shipped them. This was a relatively safe and simple operation. But, in accordance with industrial policy, Union Carbide was under constant pressure from the government to cut imports and reduce the loss of foreign exchange. To do this, Carbide was required by its state-issued operating license to transfer to the Bhopal facility the capability to manufacture the basic pesticides and, subsequently, even their ingredients. Everything was to be "Indianized." Even the chemical production processes used in Bhopal were developed by Indian researchers . . .
To produce Sevin, carbon tetrachloride is mixed with alpha-naphthol and a chemical known as methyl isocyanate, or MIC (the chemical that leaked in the accident). Liquid MIC is a highly unstable and volatile chemical, and a deadly toxin. . . .
MIC was not required in Bhopal while the factory simply packaged Sevin, its final product. But the logic of "industrial self-sufficiency" and "technology transfer" required the manufacture of Sevin from scratch -- and that meant dealing with its hazardous ingredients, including MIC.
So in 1971, the Union Carbide factory opened a small plant to manufacture alpha-naphthol, and began to import and store MIC -- a chemical which never had to be in India in the first place, except to satisfy the Indian government. . . .
In 1977, based upon projections of growing demand, the Bhopal factory began to increase its alpha-naphthol facilities dramatically. A new $2.5 million plant -- designed, of course, by an Indian consulting firm -- was built. Ten times larger than most similar plants, it at once displayed design problems of scale: equipment would not work or would turn out to be the wrong size. . . .
Ultimately, faced with an inoperable alpha-naphthol facility, the factory's management decided to [open an MIC production facility in 1980]. . . . The parent corporation sent guidelines for the design of the safety systems; but under Indian law, the details had to be determined by an autonomous Indian-staffed consulting firm. . . .
What had begun as a Carbide subsidiary for packaging pesticides was now a government-directed business manufacturing and storing a deadly chemical in a technologically backward culture.
Those were not business decisions. Those were political decisions. . . .
One last element of government policy helped lay the groundwork for the pending disaster. The area around the plant had been deserted at the time Carbide moved in. But in 1975 the local government, in a re-zoning scheme, encouraged thousands of Indians to settle near the plant by giving them construction loans and other inducements. In effect, government first helped to make the plant unsafe, and then drew the people into the path of the coming gas cloud.
Add to all this the fact that after the plant was opened, the Americans were sent packing and were replaced by under-educated locals -- most of them friends and relatives of local officials -- and the culpability is clear.
Union Carbide was thus the victim of a "bait and switch." They came into India under one set of business circumstances; but as time passed and they acquired a huge investment in sunk costs, Indian officials changed the deal in numerous ways, removing from Carbide the power to govern the operation of their own facility. Anyone who wishes to blame Carbide and capitalism for the outcome, rather than the Indian government's fascistic "industrial policy," is simply ignoring the bald facts of the case.
"The final outcome of the credit expansion is general impoverishment."
Mises - Human Action, p. 562; p. 564