Wednesday, November 30, 2005

Guest Post: Why does it happen?

Sanjay Dani, the founder of [and a friend, philosopher, guide to me*] recently sent me his comments about a recent article in the Indian Express on the IOCL incident. This post is a reproduction of his mail [with permission]. Read on for an interesting take on the root cause of the existance of such a mafia.
* [update] The above statement has lost its validity as of Dec 2006, when he and I had a split [he choosing to call me names because I stood up to his autocracy]. The article is still good, and I ask you to read on.

Flawed policies and incentives to make billions through
illegal arbitrage and quality compromise in more civilized
countries rarely make their mafia/cartels justify murder risk.

1. Floating, i.e. unsubsidising, kerosene can't fully
insure _all_ adulteratives like pentane, benzene, heptane, etc.
will be priced at par with diesel and petrol. It may reduce
the financial incentive, not eliminate fully.

2. The author should consider rephrasing her statements (double
quotes are suggested additions) in order to not give undeserved
policy cover to the oil mafia in state/central govts:

a) The profits "and a non-enforceable criminal justice
system, as evident how the CBI/state policy let the
murderers and conspirators behind Satyendra Dubey's killing
get away" make murder an acceptable risk.

b) The responsibility of the murder lies with economic
policy "and the non-functional criminal justice system
that doesn't allow honest officers and prosecutors to
convict not just the murderers of Manjunath but the entire
conspirating mafia behind, even if leading to the CM's or
PM's office".

3. Market forces can deal with adulteration, i.e. the
recent decriminalizion after the anti-adulteration
CBI cells themselves were found to be corrupt, can work
only if the oil company management starts taking explicit
responsibility to shut off supplies to offenders based
on a mandatory sampling policies instead of leaving the
honest lone rangers like Manjunath to enforce the
raids/shutdowns physically on the site.

4. Market forces can deal with quality control only if
shareholders feel the heat from customer rejection and
are incentivized to make their management enforce quality.
When the shareholder is the government, i.e. no realtime
accountability that market forces depend on, the rakshaks
have more incentive being bhakshaks. So public sector
management can have it both ways: be on the payroll of
the adulteration mafia, as is surmised based on the fact
Manjunath was a rare exception, blame the lone rangers
for not enforcing quality control, and "the govt".

Despite all the flak (am sure much deserved) given to
private oil companies like Reliance it might be worth
reflecting customers are flocking to their petrol pumps.
Guess the Ambanis have more incentive to make money
from larger market share away from competition with
better service and product quality (unfortunately
monopolizing the supply side and abusing import policies,
irrelevant here) than splitting profits with the adulteration
mafia. That is how market forces have to be made to work.

We can't continue to have the bastardized systems: a
democracy with a sold-out justice system, market
forces with unaccountable shareholders like govts, and
"pro-poor" subsidy policies made by elected decision
makers on the take from the mafia that abuses subsidies.
Sanjay Dani
San Francisco

PS. It is okay to redistribute this message as long as
attributed to the author.

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