August 5, 2010

Sachs, GNH, and Bhutan

Sachs, GNH, and Bhutan

Jeffrey Sachs ( is a well known economist with decades of work behind him. Hearing him speak at the Royal Institute of Management (RIM) in Bhutan this week, I wondered why when I was doing my first degree way back in the mid 90s (economics honours with a fabulously in-depth undergraduate program), some of my best professors frowned at the mention of Sachs. Now here was this perfectly pleasing economist talking about development and happiness in Bhutan in a sane equable manner. Why was he reviled by the campus progressives in the 90s? Some clues to this can be found in the article ‘The long, strange career of Jeffrey Sachs’ ( Yes, there was, of course, the intoxicating rush in the west following on from the end of the cold war, and economists (like Sachs) were part of the resuscitation corps with their shock therapy approach to transition that ultimately failed in the long run (having travelled through parts of Russia, east europe and the baltic states recently, I don’t feel queasy about using the word ‘failed’; plus the social statistics talk for themselves). Whatever contribution he may (not) have made to the 90s fiasco in Russia and parts of Europe, the mature Sachs whom I encountered in Bhutan this week made a lot of sense. Artists have phases, why shouldn’t economists?

He spoke about GNH (Gross National Happiness) as a global challenge by addressing some specific issues – challenges and risks that Bhutan faces, and made some comparison with how poorly the US is doing. As an economist and philosopher (setting aside for a moment the novelist, traveller, poet) with experience of and expertise on Bhutan, here is my verdict on, and engagement with, his prescriptions for Bhutan:

First the points of agreement. I agree with him that Bhutan is a low income country and a certain amount of material advance is necessary for its links to health and education. We do need technological understanding and governance that taps deep values. Bhutan is, as I have also argued in my work repeatedly (see weblinks on the CV page at, an oasis of peaceful economic development in a complicated geopolitical neighbourhood. Sachs sees the need for a rural development policy and agricultural development policy, especially in the face of the poverty incidence figures (urban poverty is about 2% and rural nearly 30%).

It is for this reason that I’m a great fan of the 10th five year plan of Bhutan with its focus on poverty reduction. Rural povery can be a crushing blight and a source of constant misery in the form of unending rural-urban migration and associated impact on city infrastructure and social friction.

Sachs recommended that the hydropower sector (which he said is environmentally a benign sector) should be kept publicly owned and as a national industry, it can provide significant earnings from export that can be reinvested in health, education, poverty mitigation, infrastructure, and connectivity. He was clear that hydropower ought to be developed expeditiously and the bargaining terms for its export (primarily to India) ought to be scrutinised very carefully and supplemented by adjusting contracts terms for future inflation. A grant isn’t necessarily a good deal, he said.

Absolutely. Especially since grants aren’t what they used to be anyway. The old ratio in hydropower projects with India of 60:40 (60% grant, 40% loan) is now 70:30 (70% loan and 30% grant). I mentioned this to Sachs in my comment – hydropower development is necessary and it should not be privatised, but there are also crucial considerations in general about investment sources and environmental issues for hydropower. I gave the rather shocking example of Kárahnjúkar dam in Iceland where Europe’s largest hydropower project is located; it is detrimental and environmentally problematic (see the previous article ‘April is the cruellest month/I will show you fear in a handful of dust’ on this blog ‘Propaganda of the Reed’ where I probe beneath the Icelandic volcano). Further, I feel only partically able to agree on his recommendation that some of the earnings from hydropower could be used to gradually introduce a kind of old-age benefit system. Bhutan as a society is emotive about family ties and somehow I feel that something fundamental changes when care for the old passes away from the family to the state.

I think many of us dream of having a big canvas and an ability to move things around on it so that the best outcome results. Focus on connectivity, Sachs stressed, use of science and technology can improve lives. Make more roads, get more phones, more internet, more infrastructure, more connectivity.

Yes, connectivity is good. I agree. But, as I said to him, we must not miss out on the essential counterpart to connectivity, which is relationality.  Connectivity connects objects. Relationality connects people. We live, I feel, in an inalienably enchanted world (in Bhutan, we largely do, inspite of the disenchanting effects in the west of the european enlightenment that robbed the universe of its breath). We can live in a world where everything is accessible but that does not necessarily mean that we will be able to relate to the various aspects of our connectedness. There is Mechanism. And then there is Meaning. It is, I would argue, far more important to relate than to connect. Infrastructure may give us a phone or a road, but the real task is how we would speak or travel. It is not inconceivable that the more people are connected (such as in the most prosperous and infrastructurally enabled economies), the more they are alienated.

Another point where I would disagree with him is his focus on intensive agriculture. He stressed repeatedly, go for intensive agriculture – the yields in Bhutan are low, you can produce more. Give farmers subsidies. Use chemicals and fertilisers. Get high yield seed varieties. Grow more. The plant doesn’t care where it gets its Nitrogen from. The world can’t feed itself on organic farming. And so on.

Here’s what I think. One, the problem at a global level in relation to hunger is not a technical issue of production, it is an ethical issue about unfair trade practices and skewed terms of trade for countries that are producers of primary commodities. Two, even aside from cost burden, subsidies for intensive farming are not a good idea. The European example of the Common Agriculture Policy (CAP) suggests that it creates perverse incentives and farming lobbies and leads to overproduction which is then destroyed or dumped into other countries, thus ruining their domestic production. Three, while rapid advancement in yield production by using fertilisers, high yield crops and technology sounds good in theory, studies even from the well-known ‘Green Revolution’ show that (speaking in economese) the application of technology is not neutral to scale. In other words, the large producers benefit more, and this may lead to a trend towards large scale intensive farming for greater profits. This would certainly not help inequality in a small society like Bhutan. Four, intensive agriculture is generally bad for the environment; any detrimental effects would be worsened in a complex Himalayan ecology such as that of Bhutan. Five, the question is not one of productivity challenge to improve yield, but of whether there exist in Bhutan adequate facilities to test and monitor instances of ‘biomagnification’ from pesticide residue. Six, there is the fundamental question – why increase productivity? If the answer is not simply a mechanistic efficiency one that would like to see a better relation between inputs and outputs, then the answer must be – because we want to raise the standard of rural farmers and value agriculture better. Well, in this case, the focus must be on increasing the value of agricultural products and changing people’s attitudes and preferences towards agriculture (typically education means people don’t want to go back to farming). Organic farming, which can be a privileged preserve of big landowners in the English countryside (doesn’t have to be, but often is), is then a valuable alternative for the Bhutanese case. Thus, in general terms, instead of Sach’s grow big, grow more, I’d say go niche, grow better.

Do not privatise health and education, he said. For the Bhutanese context, I agree. However, in view of ongoing developments, I think both he and I might be disregarded. There are new systems of paid specialist medical consultations, and new institutions of learning. On the education scenario, I am inclined to think that privatisation of tertiary education is acceptable, but the privatisation of primary and early education is not a good sign. Learning resources get directed to where the monetary incentives are, and affluent children from the earliest ages are immersed in the advantageous environment created by price discrimination.

As far as the USA is concerned, it has lost its way – he said. Not just that, I feel, looking at the political scenario in large parts of the world, the entire world is losing its way alongwith it. The economic recession is just a tip of the iceberg, I maintain that the real crisis of value is a crisis of values. ‘Economic violence’ (my definition of this and views on it are best summarised in ‘economics of turning people into things’,, increases by the day. Krugman’s latest article ‘Defining prosperity down’ ( paints a depressing picture. I see that we accept more and more of what we should never have accepted in the first place. Worldwide, inequality continues to worsen and so does exploitation and repression.

The hypocritical moral veneer of ‘free society’ rhetoric is spread further and gets thinner. The latest (July 2010 end) issue of the Economist magazine focuses the huge problem of imprisoning people in the US. At the same time as domestically more and more people in America are locked up and their rights are trampled on, the American political leaders lecture overseas about free expression and tolerance of dissent. They praise specific countries (examples from central Asia come to mind) for their progress on economic reforms and urge them to be politically more tolerant – refusing to see the links between the two. Presidential type governments in central asian republics which create the economic consensus favoured by the West cannot then allow dissent in the political realm while maintaining the monopoly of thought on economic issues. If people question and express freely, they might also question the reasons for certain economic policies, contracts or incentives. The very reasons they are praised for their economics are also the same reasons they cannot be more liberal politically.

But, this is a digression. To return to Sachs on the USA – americans watch too much TV, there is too much noise in their lives, they are bombarded by propaganda day and night. Politics is ruled by corporate interests, campaign finance is problematic. I agree (see survey about american politics and societies quoted in my paper ‘democracy in the non-west: facts, fictions, and frictions’, e.g., on page 3, Politics is ruled by corporate interests, most of the people are lulled by mass entertainment, and the remaining few grow ever more cynical. In the vanishing space between stimuli and action, thought is constantly erased.

In his summing up, Sachs said that a ‘mindful economy’ would include (in this order): self, children, others, knowledge, nature, future, enemies and humanity. Realising this mindfulness is a real challenge in everyday life.  But one might ask how is this different from, say, Sayer’s concept of the ‘moral economy’ (I discuss some of these issues in my book Imagining Economics Otherwise, see for 2010 edition). And why just restrict this mindfulness to the ‘economy’ (that esoteric and often ill-understood construct)? Ultimately, however, my question to Sachs is: must the mindful economy also (like conventional patterns of thought) begin from the ‘self’ as his does?

I’d argue that the real challenge for mindful existence is to begin from the others and work towards the self.


April 20, 2010

April is the cruellest month / I will show you fear in a handful of dust (Eliot’s Wasteland)

The volcano Eyjafjallajökull in Eastern Iceland causes a near-complete closure of airspace over the continent of Europe for days in a row. Millions of people get stranded, sometimes in difficult circumstances at a high personal cost, at different locations worldwide. Airlines face bankrupcy, or at the very least, industry re-shaping, possibly greater monopolisation, as smaller rivals go under. The economic cost of the events is alongside the larger and multifaceted social costs.

The governmental advisories repeatedly consist of extending bans after each new consultation. In the UK, with the upcoming and much-contested general elections on 6 May (for which, good luck to the Liberal Democrats), the majority political class is more likely busy in their constituencies and probably short of time for ‘blue skies’ thinking on this unfolding dynamic scenario.

We, the people, receive news on new developments through the media, where the updates never fail to include the now-largely-accepted consensus that consists of some permutation of the elements: Iceland troublesome yet again (first their banks, then this!), volcanic ash clouds, risky for plane engines, some test flights no damages, situation uncertain, hope for the best, safety above everything.

The situation in Europe in these last few days reminds one of the movie Casablanca’s (1942) famous opening visuals of the people tracing their routes via Lisbon (ironically, one option in the present too) to get stuck in Casablanca where they ‘wait, and they wait’. Or, even of Albert Camus’ The Plague in its drawing of the human condition.

The reports from the stranded and the inconvenienced range the spectrum from the grim to the grotesque. Apart from passengers, there are stories of trouble for farmers exporting perishables to Europe from Africa, and a logjam in the diamond industry with Antwerp-India delink delaying shipments of diamond rings and necklaces.

There is need to look in greater detail at this. Here is some preliminary questioning.

First, what were the mechanisms in place to anticipate such a scenario and plan accordingly? Referring it back to ‘mother nature’ with a woebegone wringing of hands ‘nothing can really be done about this’ may be good for some believers, but begs many questions still.

The  FIFTH MEETING OF THE INTERNATIONAL AIRWAYS VOLCANO WATCH OPERATIONS GROUP (IAVWOPSG) was held in Lima, Peru, from 15 to 19 March 2010. The report of that meeting is online at The word ‘Iceland’ does not even figure in it! Yet there had been increased seismic activity in the region of the Icelandic volcano from the end of 2009 onwards.

The report (online at of the FOURTH MEETING OF THE INTERNATIONAL AIRWAYS VOLCANO WATCH OPERATIONS GROUP (IAVWOPSG) which was held in Paris, France, from 15 to 19 September 2008 is important, and specifically note the extract (from page 34, in italics below) and the agenda item relating to scientific decisions on ‘safe’ volcanic ash limits. There was a proposal made by the Iceland Metereological Office (IMO) to install a second Doppler weather radar in the eastern part of the Iceland to assist in monitoring the volcanic eruption activity in that area. In response, while it was understood that “such eruptions could have a major impact on aircraft operations over the NAT Regions since Icelandic volcanoes were situated close to important air routes”, nonetheless, it came to the following: “While the group agreed that such Doppler weather radars were useful tools for establishing the nature, height and extent of eruption columns and plumes, and agreed that an additional radar in Iceland seemed in principle useful, the information provided was not considered fully sufficient for the group to provide a definitive assessment of the proposal”.

Read more details in italics below, or download the report online. This was the situation in 2008.

Agenda Item 6: Development of the IAVW

6.2: Development of future satellite sensors and other systems to improve detection of volcanic eruptions and VA clouds

6.2.1 With regard to the definition of the lower limit on “safe” ash concentration, the group considered that with improving remote sensing techniques, progress on this long-standing issue could be expected, which could considerably contribute to the future operation of the IAVW. The group agreed that this issue should be progressed in parallel both by the IAVWOPSG and by WMO fora.  As it had proven difficult to get formal aviation representation at science-focused WMO workshops, the input of the aviation industry to this problem may have to be sought through IAVWOPSG . In this regard, the group endorsed the following conclusion:

Conclusion 4/24 —  Issue of “safe” concentration of volcanic ash


a) WMO be invited to further explore the issue of measuring the concentration of volcanic ash from the scientific viewpoint; and

b) the IAVWOPSG Members from IATA and IFALPA, explore the issues related to “safe” concentration of volcanic ash from an industry viewpoint, including the possibility to invite the manufacturers to IAVWOPSG meetings; and

c) the IAVWOPSG Members from IATA, IFALPA and WMO prepare reports in time for consideration by the IAVWOPSG/5 Meeting.

6.2.2 In connection with the use of remote sensing for detection volcanic ash, the group

considered a proposal by the Iceland Meteorological Office (IMO), which was responsible both for aeronautical meteorology and volcanological monitoring in Iceland. In particular, the opinion of the IAVWOPSG was sought on a proposal to install a second Doppler weather radar in the eastern part of the country to assist in monitoring the volcanic eruption activity in that area. The group considered that such an additional radar could have provided useful information related to the 2004 eruption of Grímsvötn,

located in the Eastern part of the country, if it had been operational then. Furthermore, a new Doppler radar in that area would be likely to optimise radar coverage over Iceland for volcanic cloud monitoring. The group noted that, according to the expert opinion of the IMO, Grímsvötn was expected to enter an active state with an estimated eruptive period of every two to seven years. Such eruptions could have a major impact on aircraft operations over the NAT Regions since Icelandic volcanoes were situated close to important air routes.

6.2.3 While the group agreed that such Doppler weather radars were useful tools for establishing the nature, height and extent of eruption columns and plumes, and agreed that an additional radar in Iceland seemed in principle useful, the information provided was not considered fully sufficient for the group to provide a definitive assessment of the proposal. Furthermore it was agreed that a detailed technical/scientific evaluation of the proposal would be outside the terms of reference of the group and that such an evaluation would have to be carried outside the IAVWOPSG, in close coordination with WMO and aviation user organizations.

One year later, at the Peru meeting in March 2010, the item relating to Volcanic Ash Advisory (VAAC) for London – looking at the VAAC responsibility map, VAAC London includes Iceland but not Europe – which states the following (page 16):

i) VAAC London

There had been no volcanic activity in the VAAC London area of responsibility, but volcanic ash advisories/volcanic ash graphic had been issued in support of three exercises in the EUR/NAT Region.  Coordination of volcanic ash exercises in the EUR/NAT Region had been carried out  by the Volcanic Ash Exercise Steering Group (VOLCEX/SG) chaired by VAAC London with the assistance of members from ENAV, Eurocontrol, ICAO, ISAVIA and VAAC Toulouse. Three volcanic ash related meetings had taken place during this period and a highly successful awareness workshop hosted by ENAV had been held in Sicily, Italy.

and again (on page 26):

6.1.3 The group noted an oral report from WMO and IATA members. In this regard, WMO was expecting to receive expert advice on these issues during the Fifth International Workshop on Volcanic Ash to be held in Santiago, Chile, during the week of 22 March 2010.  IATA informed the group about the strong efforts made in order to get representation from the industry at the workshop but unfortunately these efforts had not been successful to the disappointment of the group. Notwithstanding these difficulties, the group was of the opinion that the exploration of issues related to the concentration of volcanic ash in clouds from the scientific view point and “safe” concentration of volcanic ash should be further pursued since Conclusion 4/24 was still valid.

As I finished writing up most of this blog, another report also appeared online (19/4/10 GMT evening, this is the report (just-in, it seems, with ‘DRAFT’ stamped all over it) of the 5th INTERNATIONAL WORKSHOP ON VOLCANIC ASH that was held in Santiago, Chile 22-26 March 2010. This report (on page 44) mentions a paper which uses a model (NAME III) to simulate the dispersion of an ash cloud from a “typical Icelandic volcano” Hekla. It finds that the rapid spread of volcanic ash to countries in Europe is possible within 24 hours of an eruption.

The first eruption of Eyjafjallajökull was on 20th March 2010.

Second, what are the environmental goings-on in Eastern Iceland in general, and in the vicinity of the volcanoes in particular?

Eastern Iceland is the site of large geothermal and hydro projects, controversial mining -especially aluminium, bauxite – with stakes from the biggest heavy mining firms around the world.

Consider the following:

An article in the Independent from 2007 (online at describes steel pipes “as high as the Empire State Building” across a pool of oily water deep inside a mountain, connected to enormous turbines, and 40 kms away, the release of waters of a 57sq km reservoir. This is only one part of the construction projects in eastern Iceland, “designed to provide electricity for an aluminium smelter operated by the American multinational, Alcoa”.

Alcoa’s state-of-the-art smelter. The raw materials will arrive by sea – the processed alumina powder coming all the way from Australia. The metal is produced in 336 large vats or pots, as they’re called, working at 900C with each requiring a staggering 180 000 amps of electricity. It’s the reason the dam has to be so big. The first pot starts production next month and by the end of the year the plant will be producing some 346,000 tonnes of aluminium per year. More than a tonne for every Icelander.

The Kárahnjúkar dam is the largest hydroelectric project in Europe, it was attempted since 1970s, but got the go-ahead in 2002. (have a quick read about it here, then explore further,árahnjúkar_Hydropower_Project). The 2009 Icelandic documentary film Dreamland (Draumalandið) details the huge scale of the controversial project, and the opposition to it. A review of the film is at Here is the link between these project loans, Iceland economy, and the recent economic crash, it deserves more attention:

The project was on such a humongous scale for this little nation that the government found it necessary to jack up interest rates to around 15 percent in order to stop the economy from overheating, as a result of the inflow of foreign capital [read: loans awarded to the Icelandic state to finance the construction of the power plant]. Now, 3-4 years later, we see that these high interest rates played a major part in creating the bubble that eventually sank our economy last fall. [All to do with the so-called carry trade, plus it prompted Icelanders to start taking loans in foreign currencies to escape the high interest rates at home.]

John Perkins, author of the book Confessions of an Economic Hit Man: The Shocking Story of How America Really Took Over the World, is quoted by the reviewer as saying that in the way that ‘economic hit men’ work, “In the past it was mostly third-world and developing countries that were targeted”, but “Iceland is the first Western country to be hit”.

The hit men go in, convince the authorities that whatever large project they have in mind is absolutely essential to the economy, offer to provide a huge loan to fund that project, and when the loan cannot be repaid, demand control over the resources. In Iceland’s case, this would be the cheap natural energy.

Not surprising, then, to find a statement being made by George W. Bush about Iceland in the opening scenes of Dreamland (see youtube trailer at Or, to read that the Landsvirkjun [The National Power Company] refused to make public the price at which Alcoa was sold the electricity for the smelter.

The hunch is that Alcoa is being sold energy at one-third of the price that it would have to pay elsewhere in Europe, which is lower than the cost it takes to produce it…The former mayor of Reyðarfjörður [replies that he is now] the project manager for Alcoa.

This will be familiar for anyone who has managed to see Michael Moore’s new movie ‘Capitalism: a love story’ (and not many may have — as bigger cinemas did not pick it up even though the business was decent when I was able to catch the last show at an independent theatre in London, here’s a snip

Reports (unverifiable at the moment, since they are accessible only on a google cache, the actual page of as it appeared last on 12 April 2010) online include:


August 2009

Chinalco, China’s biggest aluminium producer, has shown interest in buying a 32% share in Þeistareykir ehf., a geothermal energy company from the north of Iceland, owned equally by three companies; Landsvirkun (Iceland’s national energy company), Norðurorka and Orkuveita Húsavíkur (O.H. – Húsavík Energy). Norðuorka has shown interest in selling its share and according to information from the Chinesee Embassy in Iceland a committee from Chinalco will go north to Húsavík soon to discuss with those who the purchase concerns. Alcoa and H.S. Orka, which has been bought by the Canadian H.S. Orka, have also shown interest in buying a share in Þeistareykir ehf. Chinalco owns 10% shares in Rio Tinto-Alcan, which owns an aluminium smelter in Hafnarfjörður, Iceland. Chinalco has been focusing on buying up companies in different metal industries and e.g. recently bought copper mines in Latin America from Ross Beaty, the director of Magma Energy, a Canadian geothermal energy company that is in the process of buying big shares in an Icelandic energy company, H.S. Orka and has mentioned the possibility of buying shares in Geysir Green Energy, the major owner of H.S. Orka.The coming 1st of October, the memorandum of understanding between Alcoa, the government and Norðurþing county, expires. Norðurþing has announced their interest in renewing their contract with Alcoa, which is still looking for ways to use the geothermal energy from Þeistareykir.


March 2009

A parliamentary committee for redrafting of the Icelandic constitution consulted representatives from three foreign aluminium companies – Rio Tinto-Alcan, Alcoa and Century Aluminium – to give comments about the constitution. The chairman of the committee is the former minister of industry, Valgerður Sverrisdóttir – the ‘aluminium lady’. A regulation about the national property of natural resources is in a draft of law that recently has been heavily debated in the parliament. The committee asked for comment from various directions, e.g. the aluminium and energy companies. All the three aluminium companies are owned by foreign investors and their holding companies are all registered abroad.

Energy drives the world. It did a century ago (Proust observed this in his acute dissection of moneyed social classes, “nothing can alter the antiquity of blood and the world will always need oil”), and it does now.

Smaller countries with resources like hydropower that cannot easily be transported overseas are faced with increased pressure for growth alternatives. In Iceland’s case, the geography makes it a greater challenge, say, compared to a country like Bhutan, which has so far chosen a cautious use of clean energy (a recent small project – Dagachhu – even became the first cross-border project of its kind to be approved under UN’s CDM, Clean Development Mechanism), and managed people’s economic expectations by tempering them with a holistic philosophy like GNH (Gross National Happiness). Still, smaller countries, in this respect, share the problems of resource-rich minority-populated areas within larger countries – that are often energy surplus in production, subsidise energy for export to other areas, and have to cope with variable economic and environmental scenarios.

Looking at the Volcanic Ash consultation meeting reports, the recent closure of sky traffic due to the volcano may have been inevitable, but it need not have been as unanticipated as it seemed. More and more, national governments are caught on the backfoot when it comes to larger issues of network externalities – be it the financial crisis or the ash cloud.  While innovation in businesses (straightforward incentive-based thinking) is able to utilise the positive aspects of such interconnectedness, the negative aspects (negative network externalities) as they affect public policy across borders are insufficiently understood. Every new crisis of our times (add SARS and international terrorism to the financial crisis and the ash cloud) raises continuing unanswered questions of risk assessment (revisit the Knightian distinction between risk and uncertainty), learning, responsibility, information flows and communication systems in a time of crisis.

We have lived through centuries of a certain kind of ‘grounded’ modernity – with classifiable, separable, unitarily identifiable entities. But, this ‘land-based thinking’ (if one uses this term as a short-hand for a nation-statist bureaucratised governmentality, perhaps reality will force on our imaginations a new meaning for the terms ‘airy thinking or ‘head in the clouds’) is not enough to visualise or bear the futures we face, futures of the seamless seas and skies where the very content of standard sovereignty will undergo mutations.

Blog at

%d bloggers like this: