I worked on the privatisation of England’s water in 1989. It was an organised rip-off

Taxpayers lost out, and consumers have paid through the nose ever since. This failed regime is long past its sell-by date writes Jonathan Portes in The Guardian

 


“You could be an H2Owner.” That was the slogan, to the sound of Handel’s Water Music, of the 1989 campaign to sell shares in the 10 water and sewage companies of England and Wales – not quite as memorable as British Gas’s earlier “Tell Sid” campaign, but almost as successful. Although water privatisation was extremely unpopular, with every poll showing that a substantial majority of people were opposed to the policy, that didn’t stop more than 2.5 million people applying for shares. The offer was nearly six times oversubscribed.

The only surprise is that it wasn’t much more. Long before anyone talked about “magic money trees”, the Thatcher government offered one: this was free money to anyone who filled in the application form. The average gain to investors on the first day of trading was 40%, and over the next two decades the privatised water companies paid more than £57bn in dividends, at the same time as running up large amounts of debt, the interest on which is effectively paid for by customers.

So how did we get it so wrong? I mean me, not you. I was a very junior Treasury official working on the water privatisation project, responsible for securing value for money for taxpayers and water consumers. In retrospect, we utterly failed on both counts: the shares were sold well below their value so taxpayers lost out, and consumers have paid through the nose ever since. But this is not just hindsight. We knew what was going on, because water privatisation was never really about efficiency. In the short term, the overriding political priority was a “successful” sale – one where demand for shares was high – and where those who applied and who had, from previous privatisations, already come to expect a large premium, were not disappointed.

That meant that the Treasury’s position, when arguing for a higher share price or for tighter regulation to restrain bills in the future, was exceptionally weak. The National Audit Office report on the sale details how the forecast proceeds fell by more than a third over just three months, costing taxpayers £6bn or so in today’s money, as the Treasury was steamrollered by the combined forces of the water companies’ management, the Department of the Environment, No 10 and a huge army of investment bankers, accountants and PR consultants.

In our (partial) defence, we hoped that this was a one-off transfer of wealth from taxpayers and consumers to shareholders, and that over the longer term, if we got the regulatory structure right, shareholder returns would return to something more like “normal”, as the Office of Water Regulation (Ofwat) found its feet and sought to defend the interest of consumers. But as we now know, we were wrong. Just this morning, the hapless chief executive of Ofwat, David Black, was on the Today programme, claiming that Thames Water was penalised for excessive leaks. It was left to the indefatigable Feargal Sharkey to put the numbers in perspective.

Paradoxically, while the underpricing of the water and sewage companies helped fulfil Thatcher’s short-term goal of a successful sale that was lucrative for those who bought shares, it fatally undermined her long-term goal, which was to create a “shareholding democracy” that would parallel the way right-to-buy created a “property-owning democracy”. The problem was that few small shareholders could resist the temptation to cash out their large profits.

So, as they sold their shares, the companies were bought up, mostly by private equity, institutional investors and large infrastructure firms from abroad. These investors spotted the combination of large investment programmes, effectively guaranteed returns, and a supine and underpowered regulator that lacked access to high-powered economic consultants and lawyers. The result is that companies have been loaded with debt that has permitted huge returns for shareholders. Meanwhile, regulators have allowed returns that have been high or higher than an average risky private company, yet investors have been exposed to no more risk than government bonds. As the Financial Times puts it, 30 years on, “water privatisation looks like little more than an organised rip-off”.

Where next? Here it’s worth engaging with an interesting but deeply self-contradictory defence of the sector by the head of the Centre for Policy Studies, Robert Colvile. He acknowledges upfront that the “water companies are essentially contractors. They are running the water network on behalf of the state, in a fashion agreed with the state, to targets laid down by the state.”

Indeed – so why should directors get million-pound salaries and bonuses? Why should shareholders and bondholders get returns far in excess of those we offer to investors in government debt? His answer to this is that the “single greatest justification for privatisation is competition for capital”; by which he means that if water companies were in the public sector, their investment would be in competition with other priorities, from HS2 to hospitals, and the result, inevitably, would be underinvestment.

This is helpful for two reasons. First, it’s more credible than other defences of privatisation. It doesn’t claim some mythical gains from the magic of competitive markets. Nor is it an economic argument. From a rational perspective, there’s no reason why the government can’t invest as much as is justified by the underlying economics. Instead, Colvile’s argument is political. It implies that governments, especially but not only Conservative ones, pursue stupid, self-defeating policies for short-term political reasons, so it’s worth consumers massively overpaying the private sector to secure the level of investment that is required, even if the public sector could, in theory, do it more cheaply.

Second, this points to a potential way forward that could avoid both the upheaval of renationalisation and the continued reliance on a failed regulatory regime. At the moment, the water companies are simply permanent regulated monopolies. But if those operating the water companies are contractors delivering a public service, why not, as regulatory expert Dieter Helm suggests, treat them as such, and force them to bid competitively for the right to operate? One thing we know for sure is that the current model, where companies face public sector levels of competition and risk, and get private sector levels of profits and return, has long past its sell-by date.

Pfizer's bid for AstraZeneca shows that big pharma is as rotten as the banks

Global pharmaceutical companies are dodging the risks by loading R&D costs on to taxpayers

• Mariana Mazzucato
• The Observer, Sunday 11 May 2014

Every one of Pfizer’s patented drugs benefited from decades of taxpayer funds. Photograph: Canadian Press/Rex

Countries around the world are seeking long-run, innovation-led growth in the "real economy". This is born of a wish to move away from speculative growth led by short-term financial markets. For this reason, industrial policy is back on the agenda after years of being a near blasphemy.

The life-sciences industry is top of the list, for both Barack Obama and David Cameron, of "real" industries to nurture through such policy. But this month they have been reminded of an uncomfortable truth: big pharma is just as sick as the banks. And, like speculative finance, it is hurting taxpayers in the process.

Pfizer wants to buy AstroZeneca, a British firm, to cuts its high overheads and especially to pay the lower UK tax rate (20%) – the cheap way the UK attracts "capital"– rather than the 40% US tax rate. This is nothing new as Google and Apple have been shifting profits around the world to avoid tax. Even within the US, Apple moved one of its subsidiaries to Reno, Nevada to avoid paying higher tax in Cupertino, California. Let's call it a race to the bottom.

What makes this dynamic particularly problematic for the taxpayer is that the knowledge behind Apple and Pfizer products – the key to their long-run profits – has been virtually bankrolled by that same taxpayer. As I discuss in my book The Entrepreneurial State: Debunking Private vs Public Sector Myths, every technology behind the iPhone was publicly funded (internet, GPS, touch-screen, Siri) and every one of Pfizer's patented drugs benefited from decades of taxpayer funds through the US National Institutes of Health, which in 2012 alone spent £32bn (£19bn).

Indeed, Pfizer's recent shift of one of its largest R&D laboratories from Sandwich in Kent to Boston was not due to the lower taxes or regulation in Boston but to be closer to this pot of gold. Coming back to the UK only to suck more blood out of the system should warn the government of the kind of image it wants to present of itself. Is it happy to be played front and back?

And what is happening to big pharma's research and development? In the name of "open innovation" – the admission that most of their knowledge comes from small biotech and large public labs – big pharma have been closing down their own R&D (reducing total numbers of researchers), as well as moving the remaining ones to be close to those labs.

Big pharma is no longer in the innovation business, using its own resources to fund the high-risk ideas, most of which will fail. It has become more risk-averse and prefers to focus on the D of R&D and please shareholders. Mergers and acquisition strategies reduce expensive overheads and costs (of which research infrastructure is the highest).

Things become even clearer when we look at the numbers behind one of their biggest expenditures: share buybacks. These are geared to boost stock prices, stock options and executive pay. Indeed it is this type of dynamic that has been driving the extreme inequality described by Thomas Piketty. The calculations of Professor William Lazonick suggest that in 2011, along with $6.2bn paid in dividends, Pfizer repurchased $9bn in stock, equivalent to 90% of its net income and 99% of its R&D expenditures.

While the justification for such buybacks is often that there are no "opportunities for investment", the increased public funds in pharma research shows who is funding the opportunities and who is free-riding. Though in the end both lose since without an engaged private partner, innovation suffers.

To make matters worse, these "innovative" companies advising governments on their "life-sciences" strategies are constantly seeking handouts through R&D tax credits, or more recently through the UK  Patent Box tax scheme introduced in 2013 (as well as in the Netherlands, Belgium and Spain, and soon in the US), with a 10% tax for income earned on patented drugs.

Patents are already monopolies with 17 years' protection. There is no reason to increase profits even more during that time. Especially as what drives the research that leads to patents is not the "cost" of the research, but the opportunities that are perceived—historically driven by large amounts of risk-loving public funds.

Experts from the Institute for Fiscal Studies have argued that this policy will diminish government revenue by about £2bn a year, and have no effect on business investment in research – which was meant to be the point. Indeed, private investment tends to follow well-funded public investments, that are of course undermined by the constant bashing away at the ability of government to collect tax revenue. This not an innovation strategy but a City-like speculation strategy.

The parallel goes even further: just like the banks, big pharma socialises the risk, but privatises rewards. The few drugs that are coming out would not have emerged without taxpayer-funded research. Yet the taxpayer then pays twice: first for the research then for the high prices, justified by the supposedly high risk that big pharma is taking on. This is almost surreal: what risk? And what about taxpayer risk?

Rather than empty words on a life-sciences strategy, what is needed is for policymakers to become more confident in their negotiations with business. The 1980 Bayh-Dole act that allowed publicly funded research to be patented says that government should have a say on the prices of the drugs. The fact government has never exercised this right shows who has the upper hand.

But things can change. Innovation policy should be linked to corporate governance – why should companies that spend more on share buybacks than R&D benefit from public research funds? Then "intelligent" R&D tax credits could be created, linked not to the income generated from R&D but the research labour hired to conduct it (as introduced in the Netherlands).

Government could also retain a golden share of the intellectual property rights (patents) which public research produces, and/or make sure that the prices of the new drugs reflect how the taxpayer paid for the most high-risk research. And, finally, given the high dependence of the industry on publicly -funded R&D, do not allow acquisitions that undermine the underlying research base the companies themselves should commit to - and for which they constantly request handouts.

In short, we need to start fostering a more symbiotic innovation eco-system. It's time to put an end to the current, increasingly parasitic one. We could start by realising that government does have power to actively shape and create markets, and not just fix broken ones.

Animal Farm - A Tale of two women

Meghnad Desai in the Indian Express

India's reaction to the arrest of Devyani Khobragade has been over the top. From a safe distance, the Indian political and diplomatic establishment was ready to almost declare war on America. The various past 'insults' have been detailed. Past ambassadors have thronged to TV channels to recount their experiences. India is about to retaliate and take away the rights and privileges of US diplomats.

All this and what for? The arrest of a person who is consular appointment but who is charged with some criminal activities. None of those activities pertains to her job as a diplomat for India in the US. They concern the payment and treatment of her domestic staff, another Indian woman. In our rush to defend Devyani Khobragade, we forget the plight of Sangeeta Richard. Which is natural because one is IFS and another merely a domestic servant. What rights could a domestic have in India let alone in New York? She should have been grateful that she got this fantastic opportunity to go and serve in Khobragade's household looking after her children at Rs 30,000 per month with board and lodging.

The realities of the situation are otherwise. As the US legal documents in this case show, Rs 30,000 per month is just $3.31 per hour on the generous calculation that she worked only 40 hours a week. In the visa application the salary was given not as $573.07 per month (which the Rs 30,000 would have amounted to in the days of the strong rupee) but $4,500. Richard was instructed to lie about her salary to get the visa. Thus Khobragade knowingly falsified an official document. But also paying only $3.31 per hour amounts to wage slavery as that is below the minimum wage. Since the declared salary was seven times higher than what Richard was paid, imagine how far below the minimum wage her salary was.

The American legal submission is worth reading as it is very detailed, though somewhat clothed in legalese. The fact remains that Khobragade is charged with something which can merit 15 years of imprisonment. Employing someone below minimum wage (having stated that you will not do so in the visa application) is an offence. It is not part of her diplomatic activity. Human rights of one Indian citizen have been violated by an Indian IFS official. No one in Parliament raises a word about that. Khobragade may be a Dalit (though from the creamy layer as she owns flats in the Adarsh complex in Mumbai), but Richard may belong to a Scheduled Tribe, so there is no 'lower than thou' kudos there.

US Marshall Service (USMS) personnel are not the friendliest of people, especially when they are arresting someone they think is a criminal. Papers show that the Americans were aware of Khobragade's diplomatic status, but concluded that her status was irrelevant to her crime. Still the USMS should not have strip-searched her since her crime involved no violence. She was unlikely to be carrying weapons. Nor should she have to be swabbed as there was no evidence of drug abuse. The apology has to be about the manner of arrest but not about the fact that she will be proceeded against.

The lesson is that before the entire establishment lurches into a hysteria of self-righteousness, we should ask whether there is substance to the story. From the statements of various retired diplomats, it would seem the government of India knows about this practice of falsifying visa documents and connives in it. It also shows that the government is very mean in the amount it is willing to pay its officers abroad to enjoy the sort of lifestyle they enjoy at home. If it costs seven times as much to have a servant in New York as in Delhi, either pay that much or tell the diplomats they have to do without home help, as most Americans do.

The stance India took was not a show of strength but one of petulance. The government admitted Khobragade's guilt when they transferred her to the UN. The injustice done to Richard and no doubt many other maid servants employed by IFS staff abroad still remains to be addressed.

-------

Taxpayer picked up $75,000 tab for deal between another diplomat, his maid last year

Amitav Ranjan in Indian Express : New Delhi, Sun Dec 22 2013, 09:13 hrs

It could ultimately fall on the Indian taxpayer to bail out Devyani Khobragade, the diplomat accused of underpaying her domestic help and falsifying documents to get the maid into the US.

A complaint of a similar nature against another Indian diplomat by his maid two years ago in New York had resulted in an out-of-court settlement, with the government of India footing the bill.

In December 2012, the Ministry of Finance approved the payment of $75,000 from the budget of the Ministry of External Affairs to a "former domestic assistant" who had filed a lawsuit against India's consul-general in New York, Prabhu Dayal, alleging inhuman treatment.

The settlement agreement stipulated that the deal's details would not be disclosed, or discussed with the media.

The maid, Santosh Bhardwaj, filed a lawsuit in June 2011, accusing Dayal of sexual harassment and demanding a massage from her in January 2010.

The complainant accused Dayal and his wife of making her work for long hours for $300 a month, taking away her passport, and forcing her to sleep in a storage closet. Bhardwaj demanded over $250,000 in damages and relief, but subsequently withdrew her charge of sexual harassment against the consul-general.

Dayal said the maid had run away because he had refused to let her work outside the consulate, which would have allowed her to make some extra money, but would have violated visa rules.

He denied having treated Bhardwaj badly, and said that she lived very comfortably in her own furnished room in the consulate, and was paid according to the rules.

Following an out-of-court settlement advised by the US court, the MEA, on November 21, 2012, sought Finance's sanction for $ 75,000 to settle the matter, official sources said. The argument was that the government should pay, because the consul-general had hired the maid in line with the government scheme of allowing servants during the overseas postings of diplomats.

The MEA argued that the allegation against Dayal was false, and he had been caught in blackmail resorted to by domestic helps in collusion with NGOs in the US. It backed the out-of-court settlement, saying that fighting a long legal battle would be costlier.

With the approval of the Department of Expenditure, the money was paid from the MEA's miscellaneous head, the sources said.

Despite several attempts, Prabhu Dayal, who retired from service after his New York stint, could not be traced for a comment. His whereabouts were not available even in the retired diplomats' directory.

-----

Poverty of the Indian Elite

Saba Naqvi in Outlook India

India cares about its honour. But its missions abroad apparently do not care about the rights of Indian labour. Consider the manner in which they have responded to the arrest and strip-search of India’s deputy consul-general in New York, Devyani Khobragade. The response has overwhelmingly been of a cosy clique out to protect one of its own. One could be forgiven for thinking that the mandate of the foreign service is to protect itself at the cost of the country’s less fortunate citizens.

In pursuit of that end, retired and serving officers have pulled out every argument about diplomatic immunity and Vienna Convention and gone ballistic against the US, a nation before which they usually bend quite happily and show no spine when real issues are at stake. Now, however, it has been verbal warfare for some days now. It helped that the media was also anxious to wrap up the entire story about Devyani Khobragade in the national flag and posit it as an assault on India’s dignity.

This is actually quite a bogus position if we believe in fundamental human rights. Why is no one talking about the rights of the domestic help (in the US or India)? Is the maid not Indian, only the diplomat is? And do we think that not only is it okay to pay people below the minimum wage in India but that the “right” should be extended to a certain class of Indians when they travel abroad? After all, the way this debate has been framed would suggest that middle-class Indians have some sort of divine right to domestic help—so much so that it is quite kosher for the nation’s diplomats (meant to uphold the law) to sign false documents about the salary they pay for service in their homes?

Is it being crazy or “anti-national” to wonder if the diplomat herself did not assault the national honour when she indulged in falsification, perjury and fraud? For, what kind of honour are we talking about when power and prestige seem to come from chest-thumping and bullying and has little to do with any humanitarian principle! What has become shockingly clear through this entire episode is that India has long abandoned its role as a nation that would speak for the less fortunate. For there was actually a time when India was a moral force in the world. Then the world extended real respect to its leaders and ideas. A “regret” by John Kerry after an almighty tantrum is not a reflection of that sort of respect.

Certainly, Devyani’s arrest should have been handled with greater sensitivity. Equally, it is true that the US applies different principles to itself and the rest of the world. But in the Devyani episode, we too have violated the spirit of one fundamental principle. For, a nation like India, with its millions who live on a subsistence wage, should be endorsing the imposition of a minimum wage. Instead, we have taken the position that seems to suggest that because our diplomats can’t afford to pay the US minimum wage, we expect the host nation to look the other way because heck, we are Indians and we need our maids and nannies! It’s actually quite path­etic that after having taken such a morally bankrupt position, we would subsequently gloat and say, see we showed them, Kerry called and apologised.

In this rather sorry tale, the maid, the other Indian in the story, has been mostly forgotten. If she is remembered, it is because the establishment has in an attempt to slander Sange­eta Richard, raised questions about her motives and even suggested that she is part of an “evangelical” conspiracy agai­nst India that operates in the US (the same conspiracy that denies Narendra Modi a visa, says one commentator).

Because labour is cheap in India and poverty rampant, certain wage laws have been enacted to protect the poor. Public servants should be held to a higher standard both in India and outside. The babus of the foreign service cannot hide behind diplomatic immunity and hold cheap Indian labour hostage to their needs.

Devyani now has a job in the UN, presumably with maids in tow. She also has a flat in the Adarsh Society in Mumbai besides 30 acres of farmland in Maharashtra that she inherited, a 5,000 sq ft plot in Alibaug and a plot in Noida. If she could not live without a maid, she should have paid the minimum wage in the US. Sangeeta Richard has complained about Devyani taking away her basic rights and treating her “like a slave”. Both as an Indian citizen and as a citizen of a world governed by ideas of justice and equality, Sangeeta has every right to seek a better life.

-----

The Other Side of the Story

Outlook India

Tell-Tale Charges
Sangeeta Richard’s husband Phillip in a petition to Delhi HC

• ”The treatment of Sangeeta by Devyani Khobragade is tantamount to keeping a person in slavery-like conditions or keeping a person in bondage.”
• ”Even though the contract stipulated that Sunday would be an off-day she worked from 6 am to 11 pm, minus 2 hours for church even on Sunday. She worked from 6 am to 11 pm on Saturday as well.”
• “Uttam Khobragade called Sangeeta’s family several times and threatened them that they would have to face dire consequences if she complains and that he would ruin their future, get them abducted and frame false charges of drugs against them.”
• ”At the immigration office, Devyani  falsely accused Sangeeta of theft, in front of the US Immigration Officer. Sangeeta asked what it was she had stolen. Devyani could not say and threatened her saying that she will come to know when she returns home.”

Sangeeta’s daughter Jennifer to “prakashs@state.gov” in July

• ”My mother used to sound unhappy whenever she talked to us on phone.She asked Devyani to send her back to India but Devyani refused her request.”
• “Uttam Khobragade forced police to come to our house at night around 11 pm. There were 5 policemen. From that day onwards police has started calling my father, my brother and me as well... He said to my father that he would destroy our future and not let my father continue with his job anymore.”
• ”We no more feel safe in our own house because of the phone calls we are getting and the words that Uttam Khobragade has said to my father. We really need your help to get out of all this trouble. It is like a mental torture on my family. PLEASE HELP US.”

***

Much has been said on ‘Khobragate’ but almost none of it has come from Sangeeta Richard, the help, or her family. Though she is in the US, few know about her whereabouts; neither has she issued any statement after walking out of her employer’s house in June. Even her husband and two children—a son and daughter—are now in the US, having flown out of New Delhi days before Devyani Khobragade’s arrest, and remain incommunicado. In this context, one crucial document that adds fresh detail to the prevailing narrative is the petition her husband Phillip Richard had filed in the Delhi High Court in July this year.

The charges, culled from phone conversations he had with Sangeeta, cast Devyani in a somewhat different light, more a perpetrator than a victim. Phillip accuses her of treating his wife “like a slave”, making her work from 6 am to 11 pm everyday, “often without breaks”, and pleads for her to be punished. Even though she was entitled to a day off, the petition claims, she was made to work similar hours on Sunday, with a break of two hours for her to go to church. “She was even asked to stop eating if she had some work to do,” says Tariq Adeeb, Phillip’s advocate. Devyani reportedly also “confiscated” Sangeeta’s passport after the duo’s arrival in November last year “telling her that the original has to be submitted in the ministry”. “This was just a subterfuge to illegally keep Sangeeta’s passport,” the petition reads.

“If she couldn’t afford a help in New York, she should not have taken one. We have to give a domestic help’s work due dignity.”

As outrage over Devyani’s arrest and her maltreatment grew, there was little thought for Sangeeta. “If she couldn’t afford a help in New York, she should not have taken one. We have to give the work of a domestic help its due dignity,” says Rishi Kant, who works for Shakti Vahini, a Delhi-based organisation that works with domestic helps. New York-based Preet Bharara, the prosecutor in this case, also asked pointedly, “One wonders why there is so much outrage about the alleged treatment of the Indian national accused of perpetrating these acts, but precious little outrage about the alleged treatment of the Indian victim and her spouse?”


Weeks after her arrival, Sangeeta complained to Phillip about her “miserable work condition” and asked her employer to relieve her and have her sent to India. On June 23, a day after telling Phillip of her constant harassment, she went out to buy groceries. And has not returned since. Phillip even accuses Devyani of deducting Rs 10,000 from her salary when Sangeeta fell ill whereas her contract promised “full medical care”. His plea was dismissed on July 19, according to Adeeb, because the high court claimed “no jurisdiction on a crime committed on foreign soil”.

Devyani stands accused by US authorities of “visa fraud” and giving “false information”. While submitting details for a visa for Sangeeta, she clearly stated she would be paid $9.75 per hour, in line with the minimum wage requirements, but alongside she had executed a second contract that was signed by the two and concealed from US authorities. According to this, she would be paid a maximum of Rs 30,000 per month or $3.31 per hour.


The US complaint, based on statements by Sangeeta, even accuses the diplomat of instructing her not to mention being paid Rs 30,000 at the visa interview and claim that she would work stipulated hours. Phillip’s petition also adds that Devyani “took the signature of Sangeeta” on the second contract at the airport two hours before their departure. The diplomat’s father, Uttam Khobragade, has refuted these charges, claiming that Sangeeta was being paid $8.75, of which Rs 30,000 was being sent to her husband every month. They have even accused Sangeeta of “extortion”, claiming she asked for $10,000, a regular passport—hers was an official one secured for her by her employer—and immigration assistance. At a press conference in Mumbai, Devyani’s father reiterated that stand. “We paid her according to the minimum wage. Sangeeta seems to have used Devyani to go to the US,” he said. With Sangeeta herself still not having given her side of the story, the last word on ‘Khobragate’ is still awaited.
-------

A tale of two citizens

RUCHIRA GUPTA  in THE HINDU

  

In the Khobragade case, India had two standards: one for what a middle-class woman needs and feels and another for what a working-class woman needs and feels

India has two citizens, not one — Devyani Khobragade and Sangeeta Richard. India needs to stand by both. Both are looking for protection from unfair treatment. However, one is being blamed for speaking up while the other has been turned into a heroine, whose honour is tied up with India’s honour. Ms. Richard not only had to work for Ms. Khobragade in New York for less than the legal minimum wage but was also forced to sign documents saying she was earning more. When she objected and left her employment, her family in Delhi was threatened and cases were filed against her in a Delhi court for flouting her visa conditions.

Ms. Khobragade was picked up outside her daughter’s school for not paying Ms. Richard the legal minimum wage. She was humiliatingly handcuffed and strip-searched — a violation of the Vienna Convention, which lays down the guidelines for how diplomats should be treated.

While India has rightfully objected to the treatment of its diplomat, it needs to address the fact that she broke the law of the host country she was posted to.

The diplomat not only did not pay legal wages, she also falsified documents and then tried to intimidate the victim’s family by filing a case in the Delhi High Court. If Ms. Richard “stole” money and a phone as the Indian embassy press release says, then a police case ought to have been filed in New York and not Delhi, a city where Ms. Khobragade has connections and influence.

The victim and her family were hiding in fear of retaliation by Ms. Khobragade’s family and the government till they left Delhi for New York.

Both women are wives, daughters and mothers, and both are concerned about their families. While the government has expressed concern about the trauma of one woman’s daughter and family, there is only anger against the other woman’s family. One is a working-class woman, while the other is a well-placed government official and millionaire.

This class divide has influenced our reactions to both women. Our anger against Ms. Richard is based on our own sense of entitlement over the poor and the working class. We feel betrayed when they ask for anything that we have not conferred on them out of the “largeness” of our hearts.

We have two standards for what a middle-class woman needs and feels and what a working-class woman needs and feels. While we are quick to point out that the salaries of our foreign diplomats need to be raised so that they can afford to pay their domestic help according to U.S. standards, we omit to note that we have no minimum wages in India for our own domestic help. Only two States in India, Tamil Nadu and Kerala have any legislative protection for domestic workers. Routinely, domestic helps in India are exploited in terms of no. of working hours, pay, living conditions and leave. Live-in help in middle-class India usually work round the clock.

Perhaps that is why Ms. Khobragade did not feel she was doing anything wrong in breaking the U.S. law. Her outlook was conditioned and normalised by the working conditions of domestic help in India.

Standing by the weak

Empathy is a very revolutionary emotion. It is high time that the Indian government addressed the labour conditions of millions of domestic workers in India through legislation and fixing accountability on those who exploit them. Patriotism is not just about standing by the rich and powerful but about standing by Gandhi’s “last” (the poorest and weakest) individual or Ambedkar’s Dalit (oppressed) person. When Bharatiya Janata Party leader Yashwant Sinha calls for the government to take action against gay U.S. diplomats under Section 377 of the Indian Penal Code which criminalises homosexuality, or when Samajwadi Party’s Azam Khan offers a seat in his constituency to Ms. Khobragade, or former Uttar Pradesh Chief Minister Mayawati says that the Indian government was slow in reacting to Ms. Khobragade’s arrest because she was a Dalit, they are ignoring the very ethos of Indian democracy on which our nation rests.

India has a moral standing in the world as the country that won independence from British colonialism through non-violence. We demonstrated to the world that the means are as important as the end. Once again, when we take the moral high ground with the U.S., we can only do so if we stand by all the “oppressed” and not just one of them.

-----

An abuse of immunity?

DEEPAK RAJU

RUKMINI DAS in THE HINDU 

 

Notwithstanding the several privileges and immunities Indian diplomats and consular officers are entitled to, they have a corresponding duty under the 1961 Convention and the 1963 Convention to respect the laws and regulations of the host State

The arrest of Indian Deputy Consul-General Devyani Khobragade in New York and the alleged mistreatment she faced have resulted in a diplomatic row between India and the United States. The Indian stance, after initial assertions that she enjoyed “diplomatic status” and that she should not have been arrested, now appears to focus on the manner of her arrest and her subsequent treatment. The U.S. has sought to justify the arrest on the grounds that the proceedings do not relate to Ms. Khobragade’s official acts, and has asserted that it followed the “standard procedure” in relation to her treatment. On the diplomatic front, India is reported to have initiated some tough measures, including the removal of security barriers around the U.S. Embassy in Delhi.

Question of immunity

At the outset, it is important to draw a distinction between diplomatic agents of states and consular staff. While the 1961 Vienna Convention on Diplomatic Relations covers the privileges and immunities of diplomatic agents, the treatment that consular staff are entitled to is laid down in the 1963 Vienna Convention on Consular Relations. As the Deputy Consul-General at the Indian Consulate in New York, Ms. Khobragade was, at the time of her arrest, a member of consular staff, and not a diplomat.

Unlike the 1961 Convention, which vests diplomatic agents with absolute immunity from arrest, the 1963 Convention states that “Consular officers shall not be liable to arrest or detention pending trial, except in the case of a grave crime and pursuant to a decision by the competent judicial authority” (Article 41(1)). Article 43 of the Convention goes on to vest consular officers with immunity from jurisdiction of the receiving State in respect of official acts.

It is evident that the allegations against Ms. Khobragade relate to her personal and not to her official acts. This means that she is not immune from the jurisdiction of U.S. courts in relation to this allegation. However, this in itself does not render the arrest legal. There may be situations where a country may have jurisdiction to try an offence, but an arrest would violate international law. An Indian domestic law analogy may be one where the police station has jurisdiction to investigate an alleged offence, a magistrate’s court may have the power to try the case, and yet an arrest may be illegal due to various reasons like the lack of a warrant where required, or arrest of a woman after sunset. Similarly, for Ms. Khobragade’s arrest to be legal, in addition to the U.S. possessing jurisdiction to try her for the offence, it needs to be established that the conditions laid out in Article 41(1) are satisfied: (i) that her arrest relates to a “grave offence” and (ii) her arrest was pursuant to a decision by a competent judicial authority.

The 1963 Convention does not define what qualifies as a “grave offence.” However, the rejection of an initial draft that suggested that arrest be restricted to offences that carry a maximum sentence of five years or more indicates that the Convention leaves it to each State to determine, under its own domestic law, whether an offence amounts to a “grave” one. The charges that have been levelled against Ms. Khobragade are categorised as felonies in U.S. law. This may be sufficient to meet the requirement of a “grave offence.”

As per the documents published in The Hindu, her arrest was pursuant to a warrant issued by Hon. Debra Freeman, United States Magistrate Judge for the southern District of New York, a judicial authority. Thus, both the requirements imposed by the 1963 Convention for the arrest appear to have been met.

Even if the arrest was legal, her treatment including handcuffing and a strip-search could amount to violations of Article 41(3) which requires that criminal proceedings against a consular officer be conducted “with the respect due to [her] by reason of [her] official position.”

In sum, the arrest itself appears to be legal. However, a challenge to the manner of the arrest and the subsequent treatment may be tenable.

Retaliatory measures

India has reportedly taken the following retaliatory measures: (i) removal of security barricades around the U.S. Embassy in New Delhi, (ii) withdrawal of airport passes and import privileges (iii) identity cards issued to U.S. diplomats to be turned in and (iv) refusal by several leaders including the Speaker of the Lok Sabha and the National Security Adviser to meet a visiting U.S. Congressional delegation. Some politicians have also suggested prosecution of same-sex partners of U.S. diplomats.

While some of these measures such as refusal to meet the delegation or withdrawing discretionary privileges are merely political in nature and are best left to the discretion of such politicians, other steps like reducing security measures at diplomatic premises and embassies may violate international law, specifically Article 22(2) of the 1961 Convention that imposes a special duty upon the host State (i.e., India) to take all appropriate steps to protect the premises of the mission against intrusion or damage, or disturbance of peace or impairment of its dignity.

Even presuming that the U.S. government is in breach of its international law obligations, it does not warrant retaliation by India, by means which breach international law. International law allows countermeasures (breach of international obligations in response to a breach by the targeted country) only as a last resort and in very narrowly defined circumstances. The only options available, that are viable in international law, are a withdrawal of discretionary privileges, declaration of certain members of the U.S. diplomatic and consular staff as persona non grata (which may be considered too drastic a step) or recalling of Indian consular staff and diplomatic agents posted in the U.S.

In terms of international dispute settlement, India has few, if any, legal options. Recourse to the International Court of Justice (ICJ), the only possible option, is not available in this case (unless the U.S. consents to the same), since the U.S. has not accepted the compulsory jurisdiction of the ICJ.

While the two countries attempt to iron out their differences through diplomatic and legal channels, Ms. Khobragade can, if she and the government of India so desire, avoid further encounters with the U.S. authorities by remaining in the Indian Embassy or the premises of the Permanent Mission of India to the U.N., which cannot be entered by U.S. authorities without authorisation from India.

Obligations of India and Indians

Notwithstanding the several privileges and immunities Indian diplomats and consular officers are entitled to, they have a corresponding duty under the 1961 Convention and the 1963 Convention, to respect the laws and regulations of the host State. Irrespective of how Ms. Khobragade was treated by U.S. authorities, we must not forget the original allegation that she is in violation of U.S. law.

This possible violation of host State law needs to be investigated by Indian authorities. It is imperative that India develop a framework to address misconduct of Indian officials abroad, who have been exempted from prosecution due to consular or diplomatic immunity. Though not an obligation under international law, such a step by India will go a long way as a goodwill diplomatic gesture. It will also ensure quick responses from other countries when pleading immunity on behalf of a national, since there would be an assurance that the offender would face legal consequences in one or other jurisdiction.

Also, India’s latest step of re-designating Ms. Khobragade as a diplomatic agent to the U.N., with a view to bring her under diplomatic immunity, may be viewed internationally as an abuse of the international legal process, given that Section 14 of the 1946 Convention on the Privileges and Immunities of the United Nations (which governs immunities of representatives of the Members to the U.N., since the 1961 Convention is silent on it) expressly states: “Privileges and immunities are accorded to the representatives of Members not for the personal benefit of the individuals themselves, but in order to safeguard the independent exercise of their functions in connection with the United Nations. Consequently, a Member not only has the right but is under a duty to waive the immunity of its representative in any case where the immunity would impede the course of justice, and it can be waived without prejudice to the purpose for which the immunity is accorded.”

(Deepak Raju recently graduated with an LLM in international law from the University of Cambridge. E-mail: deepakelanthoor@gmail.com; Rukmini Das is a research fellow at Vidhi Centre for Legal Policy, New Delhi. E-mail:rukmini.das@vidhilegalpolicy.in)

Rail privatisation: legalised larceny

Train operators invest little cash but take massive profits. This wasn't what the Tories promised

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 4 November 2013 20.00 GMT

A London commuter train: no free seats, no free Wi-Fi – but good news for shareholders. Photograph: Dan Kitwood/Getty Images

"It needs access to private capital, access to private management, it needs more money into the business, and all this will become possible." David Cameron on Royal Mail, October 2013

As they flog our public assets, government ministers always promise one thing: that they will be better cared for by the new private owners. Sure, they may look like hedge funds out for a fast buck, but we must consider them investors, who will plough in their own millions to burnish the family silver.

Thatcher said it in the 80s; and now, during this second coming of popular capitalism, her grandchildren are saying it too.

While giving away Royal Mail at a bargain-basement price, David Cameron promised the result would be a flood of private cash. When a unit supplying the NHS with blood was handed over to private equity, Jeremy Hunt's officials pleaded the need for investment. And you'll hear that justification over and over again, as the coalition privatises a further £15bn worth of companies, departments and assets currently held by the public.

Never mind ownership, ministers will soothe us: lie back and think of the investment. So let's do that. Let's go back to the last great privatisation and see how much investment it yielded.

Tuesday marks the 20th anniversary of rail privatisation, the day when the government finally pushed through the legislation to break up and sell off our train services. Throughout the flotation process, successive transport ministers pointed at the goodies to come. Take this reliably bouffant pledge from Steve Norris: "There is not the slightest shadow of doubt that, freed from the constraints of public sector financing, train operators … will generate substantially greater investment in the railways because of the privatisation of British Rail."

Was he right? I asked academics at the Centre for Research on Socio-Cultural Change (Cresc) to calculate how much companies such as Virgin and First Group are investing in their services. They looked at their return on capital employed, which is to say the amount train operators made on the money tied up in their business. A low ratio would indicate an industry doing as Norris and his colleagues foretold: ploughing cash into delivering a better service. A really high ratio would indicate the opposite: barely any cash going in.

The figures are astonishing. In the financial year ending in March 2012, the train companies gained an average return of 147% on every pound they put into their business. Forget about high: that is stratospheric. It suggests that – despite all the promises made by the freshly rehabilitated John Major – the train operators are investing barely anything, but making bumper returns.

If you're a pensioner, imagine a savings account that promised to give you next year a 147% return on your cash, rather than the 1% you'll typically get now. If you're a first-time buyer, imagine selling up next year at a 147% markup – impossible even in primest, most central London.

Other businesses would kill for the kind of low-investment, high-returns that Arriva, Stagecoach and the rest are making from their train sets. Big supermarkets get about £1.08 back for every quid they put in: all that stock ties up a lot of cash. Even the supposed profiteers over at Barclays would punch the air at a 10% return. For every pound the railway barons put in, they get £2.47 back.

And that most recent figure isn't a fluke. The Cresc team went back all the way to the start of the electronic database in 2004, and found that year after year the pre-tax return on capital employed was never less than 100%. Just as remarkable are the train operators' dividends: pretty much all the profit after tax was paid to shareholders.

No wonder Richard Branson is a billionaire with his own private island. No wonder Tim O'Toole, boss of FirstGroup, and Brian Souter, head of Stagecoach, are on more than a million quid a year each. They are rewarded handsomely for handing over every spare penny to their shareholders.

But by the same token, no wonder passengers in cattle class can't get free Wi-Fi, or even a seat on the evening train out of Euston: there's no cash left to make the services worth the often excessive fares. The really big improvements, such as the west coast mainline upgrade now enjoyed by Branson's business, are funded by taxpayers. Heads they win, tails we lose.

A train lobbyist reading this (hi there!) will tell you that measuring investment by the operators is barking up the wrong tree. Arriva and the rest are essentially commissioned by the government to run a line. But that ignores three things. First, the industry never stops banging on about its role as an "investor". Second, free cash without having to pony up much actual investment is very welcome to the Branson empire, among others.

And finally, if the operators are merely there as middlemen, to sell us tickets and clip them, then why do we need them? Specifically, why is Cameron so desperate to give the publicly-run east coast mainline to the private sector?

Capitalism is meant to be about private firms taking risks and reaping the rewards. The rail network on the other hand is about the public taking the risk and racking up huge debts, even while the private firms reap excessive rewards.

Look at those investment return figures again: that isn't the triumph of liberalisation; that's legalised larceny. It hardly bodes well for the next wave of sell-offs.

Don't be fooled by Richard Branson's defence of Virgin trains

Richard Branson didn't like my column about his rail company – but he can't deny that taxpayers are piling up debts to subsidise his profits

• 
• • Aditya Chakrabortty
  • The Guardian, Monday 24 June 2013 20.00 BST

Richard Branson. Photograph: Bloomberg via Getty Images

The rich are different from you and me: they hire PR advisers. As night follows day, any criticism of Richard Branson will be met with a fierce counterblast from his troops. So it was last Friday, when a column in Branson's name appeared in the Guardian.

The Virgin boss was displeased with my piece on this page arguing that the hundreds of millions he and his partners made from the West Coast mainline had been handed to them by taxpayers. He wanted to rubbish the thesis, and reassure you that it simply wasn't true. As the headline on his article put it: "Hard work, not handouts, put our trains back on track." And the rather innovative way Sir Richard sought to persuade you of his case was by not addressing the main points and instead kicking up a load of sand.

First, he denied that the "serious money" to buy Northern Rock was fronted up by foreign investors. Tell that to the National Audit Office. In its May 2012 report on the sale of the Rock, the parliamentary auditors laid out the sources of the £772m paid for it. Virgin directly put up £200m; that compares with the £269m chipped in by the US fund manager Wilbur Ross and £50m from a private-equity fund based in Abu Dhabi. The remainder, reports the NAO, was a short-term bank loan "repaid using cash extracted from Northern Rock plc". How this £253m was taken out of the former building society we'll know for sure when the latest accounts are filed with Companies House, but to me it sounds a lot like the asset-stripping that was much talked about at the time. Whatever, my point stands: in the whip-round for buying the Rock, Virgin was not the major contributor.

Then there are the hundreds of millions you and I have given Virgin to run its railway. Branson's response here is particularly tortured: the facts won't allow him to deny receiving huge subsidies, but he does want to deny that our hard-earned money is what made the difference. To do that, he first makes out what a huge risk he took on with the West Coast franchise. Now, I wouldn't want to make out the pre-1997 line as some Elysian pleasure-rail. But you do have to wonder just how rickety this business venture was, given that over its 16 years of business, Virgin trains has only racked up a loss twice: in 1997 and 2006. Over that period, this tremendously precarious enterprise has yielded a pre-tax profit of £674m. The Virgin boss doth protest too much, I think; perhaps to drown out the sound of the cashtills ringing.

Finally, to the point Branson doesn't want us to discuss: the amount we've given to him. Let's go back to the report that prompted my earlier column. A group of researchers based at Manchester University's Centre for Research on Socio-Cultural Change looked at both the openly admitted subsidies (the £9bn-odd paid by us for upgrading the track used by Virgin) and the hidden handouts of train companies paying Network Rail super-low prices to use its lines. Under Railtrack, train operators used to pay £3bn a year in rail-access charges; now that figure has nearly halved to just over £1.5bn. Virgin is the third-biggest recipient of this secret subsidy, paying less in 2012 for using the track than it did in 2004. That is despite having a lovely new line to run on, which allows it to offer a more frequent and lucrative service. Without these subsidies, Branson and co would be in the red. But with them, it is taxpayers who are in the red: Network Rail has a debt of £30bn, which is growing at £5bn a year. This is money that will almost certainly have to be paid back by you and me.

I've said this before, but I have no particular grouse with Branson. I've taken Virgin flights and found them fine; I've also stood on a Virgin train from Rugby onwards, but such is life. I haven't been holding out for an invitation to Necker. But Virgin Rail is merely a player, a lobbyist and a big beneficiary of a terrible system, where Britons hand money to private companies who then claim to be running a profitable business while relying on a subsidy from us. Last week, we read about how the town of Fermanagh prepared for the upcoming G8 summit by sticking posters over its empty shopfronts to make them look bustling. Something similar is going on with the use of public money in the notionally private industry of rail: it's a Potemkin market, nothing more.

Branson's reply is part of a sector's attempt to duck this argument with the aid of bluster and selective facts. And since neither the government nor the train operators want to disrupt these secret handouts or to rip the veil away from our privatised system, it's easier for the press not to probe too deeply.

Yet poll after poll shows the public wants to take the rail network back into national ownership. That's all the more remarkable, given the lack of support from major political parties (it's left to Green MP Caroline Lucas to introduce a private-member's bill calling for renationalisation), and the vacuum in the media where serious discussion of alternatives to the current mess should be. Far easier, I guess, to have a secret £30bn debt with our names on it.