How I bought drugs from 'dark net' – it's just like Amazon run by cartels

Last week the FBI arrested Dread Pirate Roberts, founder of Silk Road, a site on the 'dark net' where visitors could buy drugs at the click of a mouse. Though Dread – aka Ross Ulbricht – earned millions, was he really driven by America's anti-state libertarian philosophy?

• 
• • Carole Cadwalladr
  • The Observer, Sunday 6 October 2013

The FBI alleges Ross Ulbricht ran the vast underground drug marketplace Silk Road for more than two years. Photograph: theguardian.com

Dear FBI agents, my name is Carole Cadwalladr and in February this year I was asked to investigate the so-called "dark net" for a feature in this newspaper. I downloaded Tor on to my computer, the anonymous browser developed by the US navy, Googled "Silk Roaddrugs" and then cut and pasted this link http://silkroadvb5piz3r.onion/ into the address field.

And bingo! There it was: Silk Road, the site, which until the FBI closed it down on Thursday and arrested a 29-year-old American in San Francisco, was the web's most notorious marketplace.

The "dark net" or the "deep web", the hidden part of the internet invisible to Google, might sound like a murky, inaccessible underworld but the reality is that it's right there, a click away, at the end of your mouse. It took me about 10 minutes of Googling and downloading to find and access the site on that February morning, and yet arriving at the home page of Silk Road was like stumbling into a parallel universe, a universe where eBay had been taken over by international drug cartels and Amazon offers a choice of books, DVDS and hallucinogens.

Drugs are just another market, and on Silk Road it was a market laid bare, differentiated by price, quality, point of origin, supposed effects and lavish user reviews. There were categories for "cannabis", "dissociatives", "ecstasy", "opioids", "prescription", "psychedelics", "stimulants" and, my favourite, "precursors". (If you've watched Breaking Bad, you'll know that's the stuff you need to make certain drugs and which Walt has to hold up trains and rob factories to find. Or, had he known about Silk Road, clicked a link on his browser.)

And, just like eBay, there were star ratings for sellers, detailed feedback, customer service assurances, an escrow system and a busy forum in which users posted helpful tips. I looked on the UK cannabis forum, which had 30,000 postings, and a vendor called JesusOfRave was recommended. He had 100% feedback, promised "stealth" packaging and boasted excellent customer reviews: "The level of customer care you go to often makes me forget that this is an illegal drug market," said one.

JesusOfRave boasted on his profile: "Working with UK distributors, importers and producers to source quality, we run a tight ship and aim to get your order out same or next day. This tight ship also refers to our attitude to your and our privacy. We have been doing this for a long time … been playing with encryption since 0BC and rebelling against the State for just as long."

And so, federal agents, though I'm sure you know this already, not least because the Guardian revealed on Friday that the National Security Agency (NSA) and GCHQ have successfully cracked Tor on occasion, I ordered "1g of Manali Charras [cannabis] (free UK delivery)", costing 1.16 bitcoins (the cryptocurrency then worth around £15). I used a false name with my own address, and two days later an envelope arrived at my door with an address in Bethnal Green Road, east London, on the return label and a small vacuum-packed package inside: a small lump of dope.

It's still sitting in its original envelope in the drawer of my desk. I got a bit stumped with my dark net story, put it on hold and became more interested in the wonderful world of cryptocurrencies as the value of bitcoins soared over the next few months (the 1.5 bitcoins I'd bought for £20 were worth £300 at one point this spring).

Just under a month ago I was intrigued to see that Forbes magazine had managed to get an interview with "Dread Pirate Roberts", the site's administrator. And then, last week, came the news that Dread Pirate Roberts was 29-year-old Ross Ulbricht, a University of Texas physics graduate who, according to the FBI's documents, had not just run the site – which it alleges earned him $80m in commission – but had hired a contract killer for $80,000 to rub out an employee who had tried to blackmail him.

If that sounds far-fetched, papers filed last Thursday show that he tried to take a contract on a second person. The documents showed that the FBI had access to Silk Road's servers from July, and that the contract killer Ulbricht had thought he'd hired was a federal agent. It's an astonishing, preposterous end to what was an astonishing, preposterous site, though the papers show that while the crime might have been hi-tech, cracking it was a matter of old-fashioned, painstaking detective work.

Except, of course, that it's not the end of it. There are two other similar websites already up and running – Sheep and Black Market Reloaded – which have both seen a dramatic uplift in users in the last few days, and others will surely follow. Because what Silk Road did for drugs was what eBay did for secondhand goods, and Airbnb has done for accommodation: it created a viable trust system that benefited both buyers and sellers.

Nicholas Christin, a professor at Carnegie Mellon University in Pittsburgh, Pennsylvania, who conducted six months of research into the site, said that what surprised him most was how "normal" it was. "To me, the most surprising thing was how normal, when you set aside the goods being sold, the whole market appears to be," he said. And, while many people would be alarmed at the prospect of their teenagers buying drugs online, Silk Road was a whole lot more professional, regulated and controlled than buying drugs offline.

What's apparent from Dread Pirate Roberts's interview with Forbes and comments he made on the site's forum is that the motivation behind the site does not seem to have been making money (though clearly it did: an estimated $1.2bn), or a belief that drugs hold the key to some sort of mystical self-fulfillment, but that the state has no right to interfere in the lives of individuals. One of the details that enabled the FBI to track Ulbricht was the fact that he "favourited" several clips from the Ludwig von Mises Institute, a libertarian Alabama-based thinktank devoted to furthering what is known as the Austrian school of economics. Years later, Dread Pirate Roberts would cite the same theory on Silk Road's forum.

"What we're doing isn't about scoring drugs or 'sticking it to the man'," said Dread Pirate Roberts in the Forbes interview. "It's about standing up for our rights as human beings and refusing to submit when we've done no wrong."

And it's this that is possibly the most interesting aspect of the story. Because, while Edward Snowden's and the Guardian's revelations about the NSA have shown how all-encompassing the state's surveillance has become, a counterculture movement of digital activists espousing the importance of freedom, individualism and the right to a private life beyond the state's control is also rapidly gaining traction.

It's the philosophy behind innovations as diverse as the 3D printed gun and sites as mainstream as PayPal, and its proponents are young, computer-savvy idealists with the digital skills to invent new ways of circumventing the encroaching power of the state.

Ulbricht certainly doesn't seem to have been living the life you imagine of a criminal overlord. He lived in a shared apartment. If he had millions stashed away somewhere, he certainly doesn't seem to have been spending it on high-performance cars and penthouses.

His LinkedIn page, while possibly not the best arena for self-expression for a man being hunted by the FBI, demonstrates that his beliefs are grounded in libertarian ideology: "I want to use economic theory as a means to abolish the use of coercion and aggression amongst mankind," he wrote. "The most widespread and systemic use of force is amongst institutions and governments … the best way to change a government is to change the minds of the governed … to that end, I am creating an economic simulation to give people a firsthand experience of what it would be like to live in a world without the systemic use of force."

Silk Road, it turns out, might have been that world. Anybody who has seen All the President's Men knows that, when it comes to criminality, the answer has always been to "follow the money". But in the age of bitcoin, that's of a different order of difficulty. Silk Road is just one website; bitcoin is potentially the foundation for a whole new economic order.

The Daily Mail may not realise, but Marxists are patriots

The traducing of Ralph Miliband is a reminder of how far we now are from understanding socialism

• 
• • Priyamvada Gopal
  • The Guardian, Wednesday 2 October 2013 20.15 BST

‘The record sales of Marx's Das Kapital in the last few years indicates that people are turning again to an analysis of the exploitative logic of capitalism that remains singularly accurate and powerful.' Photograph: PA

Whatever their views of him, most decent people backed Ed Miliband this week as he defended his father against jingoist attacks on him by the Daily Mail. The Labour leader angrily described Ralph Miliband as a British patriot, and correctly noted that he does not share his father's principled commitment to socialism. Labour is right to demand an apology from the Mail, not only for a frankly bigoted attack on a respected Jewish intellectual, but also for claiming that the party's politics bear any resemblance to the socialism it formally abandoned nearly two decades ago.

The defence of Ralph Miliband runs along wearyingly familiar lines – that he unambiguously proved his patriotism by fighting in the anti-Nazi war, which along with "no apology for the empire" has become the principal litmus test for love of Britain. His lifelong commitment to a supple Marxism is noted but quietly skimmed over as an embarrassingly anachronistic aspect of an otherwise decent and loyal man. Yet a defence of Miliband senior which does not also challenge the red-bashing that often goes hand in hand with antisemitism is, at best, equivocal. More perniciously, it accepts the distorted terms set by the rightwing press which defines patriotism narrowly through obedient adulation of monarchy, militarism and elitism.

Ralph Miliband was not a patriot because he served in the navy. He was a lover of this country and its people precisely because he understood that institutions like the monarchy and the House of Lords symbolise and perpetuate inequality, and that militarism usually encourages the poor to die defending the interests of the privileged. Hispatriotism has more in common with long progressive patriotic traditions in Britain, from the Diggers and Levellers to the Chartists and anti-privatisation campaigners. It was about claiming land and country for the majority of its labouring denizens rather than the plutocrats and the powerful who live off the fat of the land while spouting an insincere "nationalism" which serves less to create collective wellbeing than to prevent their privileges being questioned.

Even while noting that Ralph criticised Eric Hobsbawm for not repudiating Stalinism, the Daily Mail recyles the false charge that adherence to Marxism is indistinguishable from commitment to a poisonous Sovietism. This is no different from claiming that Christianity is indistinguishable from the bloody crusades and inquisitions conducted by some of its adherents. However, Ralph Miliband would also have found his son's claim that capitalism can be "made to work for working people" incoherent, and wilfully ignorant of how capitalism actually works, constitutively reliant as it is on concentrating wealth among relatively few while extracting the labour of the many.

For years, captains of corporations in the affluent west have been able to peddle the myth that capitalism can be made to work for everyone by outsourcing its most exploitative aspects to other parts of the world, extracting both resources and labour ruthlessly. Now, however – as the centre of capitalist gravity shifts southwards, the western social democratic compact unravels, and the foundations of the welfare state are disastrously undermined – it will be less easy to keep up this pretence of affluence for all.

The record sales of Marx's Das Kapital in the last few years alone indicate that people are turning once again to an analysis of the fundamentally exploitative logic of capitalism that, for all its relentless bad press, remains singularly accurate and powerful.

It is time to junk the cheap and facile propaganda that socialism is reducible to Stalinist depredations. In Ralph Miliband's own anti-Stalinist understanding, socialism was about "the wholesale transformation of the social order" by giving ordinary people control over the economic system, fully democratising a political system in which ordinary citizens feel disenfranchised and helpless, and ensuring "a drastic levelling out of social inequality". It is the abandonment of these democratic aspirations for the craven pieties of the Daily Mail that must really "disturb everyone who loves this country".

Alastair Campbell's attack on the Mail was terrifying – and brilliant

Why is the left obsessed by the Daily Mail?

The Guardian has published an extensive critique of the Daily Mail and its reporting of Labour, press regulation and the Snowden leaks. We invited Mail readers to join in that debate. Paul Dacre, editor-in-chief, asked for the opportunity to comment. Here is his contribution

• 
• • Paul Dacre
  • The Guardian, Saturday 12 October 2013

Paul Dacre: 'Our crime is that the Mail constantly dares to stand up to the liberal-left consensus that dominates so many areas of British life.' Montage: Guardian

Out in the real world, it was a pretty serious week for news. The US was on the brink of budget default, a British court heard how for two years social workers failed to detect the mummified body of a four-year-old starved to death by his mother, and it was claimed that the then Labour health secretary had covered up unnecessary deaths in a NHS hospital six months before the election.

In contrast, the phoney world of Twitter, the London chatterati and left-wing media was gripped 10 days ago by collective hysteria as it became obsessed round-the-clock by one story – a five-word headline on page 16 in the Daily Mail.

The screech of axe-grinding was deafening as the paper's enemies gleefully leapt to settle scores.

Leading the charge, inevitably, was the Mail's bête noir, the BBC. Fair-minded readers will decide themselves whether the hundreds of hours of airtime it devoted to that headline reveal a disturbing lack of journalistic proportionality and impartiality – but certainly the one-sided tone in their reporting allowed Labour to misrepresent Geoffrey Levy's article on Ralph Miliband.

The genesis of that piece lay in Ed Miliband's conference speech. The Mail was deeply concerned that in 2013, after all the failures of socialism in the twentieth century, the leader of the Labour party was announcing its return, complete with land seizures and price fixing.

Surely, we reasoned, the public had the right to know what influence the Labour leader's Marxist father, to whom he constantly referred in his speeches, had on his thinking.

So it was that Levy's article examined the views held by Miliband senior over his lifetime, not just as a 17-year-old youth as has been alleged by our critics.

The picture that emerged was of a man who gave unqualified support to Russian totalitarianism until the mid-50s, who loathed the market economy, was in favour of a workers' revolution, denigrated British traditions and institutions such as the royal family, the church and the army and was overtly dismissive of western democracy.

Levy's article argued that the Marxism that inspired Ralph Miliband had provided the philosophical underpinning of one of history's most appalling regimes – a regime, incidentally, that totally crushed freedom of expression.

Nowhere did the Mail suggest that Ralph Miliband was evil – only that the political beliefs he espoused had resulted in evil. As for the headline "The Man Who Hated Britain", our point was simply this: Ralph Miliband was, as a Marxist, committed to smashing the institutions that make Britain distinctively British – and, with them, the liberties and democracy those institutions have fostered.

Yes, the Mail is happy to accept that in his personal life, Ralph Miliband was, as described by his son, a decent and kindly man – although we won't withdraw our view that he supported an ideology that caused untold misery in the world.

Yes, we accept that he cherished this country's traditions of tolerance and freedom – while, in a troubling paradox typical of the left, detesting the very institutions and political system that made those traditions possible.

And yes, the headline was controversial – but popular newspapers have a long tradition of using provocative headlines to grab readers' attention. In isolation that headline may indeed seem over the top, but read in conjunction with the article we believed it was justifiable.

Despite this we acceded to Mr Miliband's demand – and by golly, he did demand – that we publish his 1,000-word article defending his father.

So it was that, in a virtually unprecedented move, we published his words at the top of our op ed pages. They were accompanied by an abridged version of the original Levy article and a leader explaining why the Mail wasn't apologising for the points it made.

The hysteria that followed is symptomatic of the post-Leveson age in which any newspaper which dares to take on the left in the interests of its readers risks being howled down by the Twitter mob who the BBC absurdly thinks represent the views of real Britain.

As the week progressed and the hysteria increased, it became clear that this was no longer a story about an article on Mr Miliband's Marxist father but a full-scale war by the BBC and the left against the paper that is their most vocal critic.

Orchestrating this bile was an ever more rabid Alastair Campbell. Again, fair-minded readers will wonder why a man who helped drive Dr David Kelly to his death, was behind the dodgy Iraq war dossier and has done more to poison the well of public discourse than anyone in Britain is given so much air-time by the BBC.

But the BBC's blood lust was certainly up. Impartiality flew out of the window. Ancient feuds were settled. Not to put too fine a point on things, we were right royally turned over.

Fair enough, if you dish it out, you take it. But my worry is that there was a more disturbing agenda to last week's events.

Mr Miliband, of course, exults in being the man who destroyed Murdoch in this country. Is it fanciful to believe that his real purpose in triggering last week's row – so assiduously supported by the liberal media which sneers at the popular press – was an attempt to neutralise Associated, the Mail's publishers and one of Britain's most robustly independent and successful newspaper groups.

Let it be said loud and clear that the Mail, unlike News International, did NOT hack people's phones or pay the police for stories. I have sworn that on oath.

No, our crime is more heinous than that.

It is that the Mail constantly dares to stand up to the liberal-left consensus that dominates so many areas of British life and instead represents the views of the ordinary people who are our readers and who don't have a voice in today's political landscape and are too often ignored by today's ruling elite.

The metropolitan classes, of course, despise our readers with their dreams (mostly unfulfilled) of a decent education and health service they can trust, their belief in the family, patriotism, self-reliance, and their over-riding suspicion of the state and the People Who Know Best.

These people mock our readers' scepticism over the European Union and a human rights court that seems to care more about the criminal than the victim. They scoff at our readers who, while tolerant, fret that the country's schools and hospitals can't cope with mass immigration.

In other words, these people sneer at the decent working Britons – I'd argue they are the backbone of this country – they constantly profess to be concerned about.

The truth is that there is an unpleasant intellectual snobbery about the Mail in leftish circles, for whom the word 'suburban' is an obscenity. They simply cannot comprehend how a paper that opposes the mindset they hold dear can be so successful and so loved by its millions of readers.

Well, I'm proud that the Mail stands up for those readers.

I am proud that our Dignity For The Elderly Campaign has for years stood up for Britain's most neglected community. Proud that we have fought for justice for Stephen Lawrence, Gary McKinnon and the relatives of the victims of the Omagh bombing, for those who have seen loved ones suffer because of MRSA and the Liverpool Care Pathway. I am proud that we have led great popular campaigns for the NSPCC and Alzheimer's Society on the dangers of paedophilia and the agonies of dementia. And I'm proud of our war against round-the-clock drinking, casinos, plastic bags, internet pornography and secret courts.

No other newspaper campaigns as vigorously as the Mail and I am proud of the ability of the paper's 400 journalists (the BBC has 8,000) to continually set the national agenda on a whole host of issues.

I am proud that for years, while most of Fleet Street were in thrall to it, the Mail was the only paper to stand up to the malign propaganda machine of Tony Blair and his appalling henchman, Campbell (and, my goodness, it's been payback time over the past week!).

Could all these factors also be behind the left's tsunami of opprobrium against the Mail last week? I don't know but I do know that for a party mired in the corruption exposed by Damian McBride's book (in which Ed Miliband was a central player) to call for a review of the Mail's practices and culture is beyond satire.

Certainly, the Mail will not be silenced by a Labour party that has covered up unnecessary, and often horrific, deaths in NHS hospitals, and suggests instead that it should start looking urgently at its own culture and practices.

Some have argued that last week's brouhaha shows the need for statutory press regulation. I would argue the opposite. The febrile heat, hatred, irrationality and prejudice provoked by last week's row reveals why politicians must not be allowed anywhere near press regulation.

And while the Mail does not agree with the Guardian over the stolen secret security files it published, I suggest that we can agree that the fury and recrimination the story is provoking reveals again why those who rule us – and who should be held to account by newspapers – cannot be allowed to sit in judgment on the press.

That is why the left should be very careful about what it wishes for – especially in the light of this week's rejection by the politicians of the newspaper industry's charter for robust independent self-regulation.

The BBC is controlled, through the licence fee, by the politicians. ITV has to answer to Ofcom, a government quango. Newspapers are the only mass media left in Britain free from the control of the state.

The Mail has recognised the hurt Mr Miliband felt over our attack on his father's beliefs. We were happy to give him considerable space to describe how his father had fought for Britain (though a man who so smoothly diddled his brother risks laying himself open to charges of cynicism if he makes too much of a fanfare over familial loyalties).

For the record, the Mail received a mere two letters of complaint before Mr Miliband's intervention and only a few hundred letters and emails since – many in support. A weekend demonstration against the paper attracted just 110 people.

It seems that in the real world people – most of all our readers – were far more supportive of us than the chatterati would have you believe.

PS – this week the head of MI5 – subsequently backed by the PM, the deputy PM, the home secretary and Labour's elder statesman Jack Straw – effectively accused the Guardian of aiding terrorism by publishing stolen secret security files. The story – which is of huge significance – was given scant coverage by a BBC which only a week ago had devoted days of wall-to-wall pejorative coverage to the Mail. Again, I ask fair readers, what is worse: to criticise the views of a Marxist thinker, whose ideology is anathema to most and who had huge influence on the man who could one day control our security forces … or to put British lives at risk by helping terrorists?

-------

Alastair Campbell's attack on the Mail was terrifying – and brilliant

Campbell's bravura performance took on the Mail's venomous world view, which is that, as an immigrant, you are only ever tolerated

• 
• • Alex Andreou
  • theguardian.com, Wednesday 2 October 2013 13.03 BST

So, to recap the effects of that Daily Mail article on Ralph Miliband: It robbed the Conservative party conference of the headlines it expected – it was ahead of any of their policy announcements all yesterday in most news bulletins, across most channels. It reinforced Ed Miliband's image, for the second week running, as someone of integrity who stands up to bullies. It secured him sympathy and support from most political opponents. It caused a social media reaction which refreshed everyone's memory about the Daily Mail's historical links with Mosley and Hitler. It even managed to revive interest in the Leveson inquiry's recommendations. All in all, it was the journalistic equivalent of a glorious Stan Laurel pratfall.

It also marked the moment when Alastair Campbell singled himself out as the natural successor to Jeremy Paxman. You know, the Paxman of old, when it was his line of questioning which caused a stir, rather than the configuration of his facial fuzz. It was all at once both refreshing to see someone properly "grilled" on Newsnight for the first time in months, and depressing that it had to be by another guest.

It was also, personally, a rather odd moment to find oneself rooting for Alastair Campbell. You got a glimpse of how utterly terrifying he must have been to deal with, when he was Blair's press pointman. How overwhelming and irresistible. A glimpse of how his ability to grind down anyone expressing a contrary view may have contributed to both the success and the hubris of the Labour party at that time. At the same time, as someone hoping that Cameron will be relegated to oblivion at the next election, I had to admit: if I could employ him to help bring that about, I would have to consider it. I may not like him, but – boy – is he good at his job!

Within 10 minutes, he got further than all the other television news political editors and correspondents put together did over 24 hours. He secured an admission from the Mail's deputy editor, Jon Steafel, that, at the very least, using a photograph of Ralph Miliband's grave was an "error". He succeeded in exposing internal rifts within the Daily Mail, by outlining the areas where even Paul Dacre's deputy refused to support him. The coup de grace was the phrase "the Daily Mail is the worst of British values, posing as the best". I suspect it will follow the Mail for many years to come. It was a bravura performance.

He even got close to unpacking the wider point. How is it that one can extrapolate hatred of Britain from criticism of its institutions? It seems that sections of the press (and, I'm sure, the public) are never far from the McCarthyist view, that wanting to change the way the state works makes one an enemy of the state. But there is a further point bubbling under the surface. Implicit in the Daily Mail's venom is the idea that being republican (in the wider, rather than US, sense), being suspicious of organised religion, being a pacifist or a socialist – all these things, which are upsetting to the Mail and its readership – become a cardinal sin if you are also a foreigner.

As a foreigner with strong opinions, I have come across this hundreds of times, in various permutations. As an immigrant one has no right to criticise any aspect of the UK. Regardless of how long one has been here, regardless of the validity of one's opinion, regardless, even, it seems, of serving in the military during a war, the immigrant's stake is limited. He is tolerated, but should watch himself. The invitation can easily be withdrawn. He should be grateful unconditionally. That Daily Mail article is just a longer version of, "If you don't like it here, you can fuck off back to your own country". It is an attitude that is not only still prevalent, but permeates the political rhetoric on Europe, trade, foreign policy and immigration.

It is this snobbery, resistance to new ideas and sense of inflated ego that are truly holding Britain back from being all it can be. It puts me in mind of something the American journalist and essayist Sydney J Harris wrote:

"Patriotism is proud of a country's virtues and eager to correct its deficiencies; it also acknowledges the legitimate patriotism of other countries, with their own specific virtues. The pride of nationalism, however, trumpets its country's virtues and denies its deficiencies, while it is contemptuous toward the virtues of other countries. It wants to be, and proclaims itself to be, 'the greatest', but greatness is not required of a country; only goodness is."

This hajj, Muslims need to ask questions about exploitation

G4S's work in Saudi Arabia has sparked controversy. But where is the outcry over human rights as a new Mecca rises to service pilgrims?

• 
• • Riazat Butt
  • theguardian.com, Friday 27 September 2013 15.15 BST

Cranes and skyscrapers tower over Hajjis in Mecca. Photograph: Alaa Badarneh/EPA

News that the Saudi government has engaged the services of security firm G4S for this year's hajj is angering campaigners, who accuse the company of profiting from the Israeli occupation of Palestinian land.

G4S has not revealed details about the nature or the scale of its involvement during hajj although a 2011 publication mentions a contract with Jeddah Metro to assist with security during that year's pilgrimage.

In light of the accusations about its activities in Israel, the company told a website that although it operates there, the structure and management of its work in Saudi Arabia is entirely different. A G4S spokesman also told Middle East Monitor: "Whilst we don't provide security directly for the pilgrims, we do provide security support for clients in Saudi that will require additional support during the hajj period."

Regardless of the nature or scale of the security firm's involvement in the pilgrimage, the combination of sacred sites and occupied territories is an inflammatory one and one NGO is already calling on the Saudi ambassador to the UK for the government to immediately end its contracts with G4S.

But if Muslims feel aggrieved about human rights abuses and hajj, then perhaps they ought to take a look at what is happening under the shadow of the heavy machinery surrounding Mecca, for the skyscrapers and shopping malls of Islam's holiest city are not being built by pixies.

This week, the Guardian highlighted the abuse and exploitation of migrant workers who are preparing Qatar for the World Cup in 2022. Similar scrutiny should also be applied to the projects under way in the holy cities of Mecca and Medina, although these have traditionally tended to excite more indignation over the demolition of buildings with historic and religious significance than the erosion of rights of the workers razing mountains. It is a good thing there is more awareness about Islam's heritage and the need to preserve it. A natural extension of this activism and discussion are questions about the people shaping Mecca: who are they, and what are their living and working conditions like?

Given the problems in accessing Saudi Arabia at the best of times, let alone during hajj, it is difficult to establish how many workers are involved with the Mecca projects, where they come from, how they are treated and how closely construction firms obey the country's labour laws. Saudi laws outline the responsibilities that employers have to protect their workers against occupational hazards, industrial accidents and workplace injuries as well as dealing with the employment of non-Saudis. Human Rights Watch has documented themistreatment of migrant workers and it is clear that existing employment legislation is no bar to abuse. Construction workers in Saudi Arabia face many of the same problems with working conditions, lack of mobility, lack of redress as other workers based in the Gulf. As in Qatar, Saudi Arabia operates a kafala system, which requires all unskilled labourers to have a sponsor. Migrant workers are therefore unable to enter the country, leave it or change jobs without their company's permission. In the spirit of openness the Saudi government could list the names of companies involved in the building projects and these companies could in turn make a pledge to uphold the rights of workers in a way that not only adheres to national legislation but also the spirit of hajj.

It may be that the very purpose of hajj makes it difficult for some to focus on the issues that the modern day pilgrimage raises. It reconnects Muslims with the religion's prophets; it represents purity, renewal, a reminder of the hereafter, unity, submission to Allah, piety, collective worship and humility. But hajj is also about equality, fraternity and justice.

While nobody is expecting banners to be unfurled in the courtyard of the Grand Mosque – although it would certainly liven up the annual television coverage – there is nothing to stop Muslims from at least asking deeper, difficult questions about the human cost of hajj.

Time to get cracking on fracking

S A Aiyer

After years of consideration, the government has come out with a disappointing shale gas policy. The public sector companies, ONGC and Oil India, will be allowed to drill for shale oil and gas in blocks they already have, but fresh auctions will be conducted for all other shale deposits. Private sector companies will not be allowed to exploit shale formations in their existing blocks. This means delay and unwarranted red tape. There is little reason to have separate auctions for conventional and non-conventional oil and gas.

Shale gas and oil have changed the face of the US. Huge increases in production have taken the US close to self-sufficiency in oil, and created a big gas surplus. By 2020, the US may get all its energy needs from its own fields and those of Mexico and Canada, eliminating the need for oil from the Middle East or Latin America. India’s prospects are much poorer. Yet preliminary data suggest that India has 63 trillion cu. ft of shale gas, 20 times as much as in Reliance’s offshore field. Additional prospecting could raise reserves considerably.

One good feature: the new policy mandates auctions based on simple production sharing between the explorer and government. The current cost-plus system has led to endless disputes in Reliance’s case. This new policy will apply to conventional as well as non-conventional deposits.

The question remains, why treat shale gas as different from conventional natural gas?

Gas and oil have been formed by the decay under great pressure and heat of marine life trapped in sands millions of years ago. Conventional oil and gas are produced by drilling into rock formations that are porous (lots of holes in the rock) and permeable (the holes are interconnected, letting the oil/gas to flow out under its own pressure). Limestone and sandstone are rocks with good flow rates. But other rock formations can be “tight”, having low porosity and permeability, in which oil does not flow easily.

This is true of shale and some other rock formations. These formations have long been known to contain enormous deposits, but extracting them was earlier not economically viable. Then a new technology, fracking, was devised in the 1990s. It used horizontal drilling and highpressure water with sand to crack open tight formations. This improved the flow enough to make drilling viable.

Now, many oil and gas deposits lie in multiple layers of different rocks. Thick sandstone and limestone formations may be interspersed with shale layers. The oil and gas lie trapped in all the layers, but conventionally were extracted only from the easy-flowing ones. Now they can be extracted from the tight layers too.

Does it make sense to decree that an explorer can touch only conventional strata and not tight layers, which should be auctioned to a separate company? Is it logical to have two companies drilling in the same block, one in the limestone strata and another in the shale? Apart from the duplication in cost and effort, it could lead to endless disputes and litigation. It could jeopardize safe field development too.

The US makes no distinctions. An explorer strikes deals with landowners, and can extract any gas or oil from any sort of rock. After all, nobody knows in advance whether oil or gas will be discovered, and if so in what sort of rock.

Exploration policy in India should similarly have no distinctions in exploration policy. However, fracking will need separate environmental clearance, because it poses special challenges.

Fracking needs very large quantities of water, mixed with chemicals, for blasting open tight formations. Waste water after fracking could contain toxic chemicals, and so must not be dumped.

To begin with, fracking in India can be limited to areas with abundant water. Only deep aquifers should be tapped for fracking, avoiding shallow aquifers used for irrigation or drinking water. Maybe sea water can be used in coastal locations.

Second, waste water after fracking must be recycled for use in new wells, not dumped. This will not only check toxic hazards but reduce the water needed for additional wells. Only certified safe chemicals should be used for fracking.

If surplus fracked water is pumped underground for disposal, it can cause small tremors (misleadingly reported as “earthquakes” by activists). This can be managed by gradual, deep disposal.

Activists will undoubtedly ask the courts to ban fracking, even though not a single case of contamination has been established after two decades in the US. The government should get an advance ruling on this from the Supreme Court, clarifying conditions under which fracking can take place. This may take a few years, so we need to start forthwith.

NDA v UPA: Close encounters with facts

Minhaz Merchant in Times of India

Which government – UPA or NDA – has been better for India’s economic and social indicators? Dismiss the rhetoric and stick to the facts. In this analysis, I’ve chosen 10 key parameters. They cover both economic and social criteria.

1.GDP growth: Average GDP growth in 1998-2004 (NDA) was 6% a year. Average annual GDP growth in 2004-13 (UPA), up to June 30, 2013, was 7.9%.

Caveat 1: The Vajpayee-led NDA battled US-led economic sanctions following the Pokhran-II nuclear test in May 1998. It faced a short but expensive Kargil war in 1999 and the dotcom bust in 2000. When it took office, it had the lag effect of the East Asian financial crisis of 1997-98 to contend with.

Caveat 2: The UPA government, in contrast, benefitted from the economic momentum of the high (8.1%) GDP growth rate of 2003-04 – the NDA government’s final year – and rode that wave. The global liquidity bubble in 2004-08 bouyed foreign mflows, helping UPA-I achieve a high GDP growth rate in its first term. The Lehman Brothers collapse in September 2008 did hurt the Indian economy but the ensuing US Federal Reserve asset buying programme attracted a steady flow of near-zero interest dollars into India from 2009.

Despite these caveats, the UPA government’s average annual GDP growth rate of 7.9% in 2004-13 clearly scores over the NDA government’s average annual growth rate of 6% (though high inflation boosted the former significantly). First strike to UPA.

2. Current Account Deficit:

2004:  (+) $7.36 billion (surplus).

2013: (-) $80 billion.

The winner here is clearly NDA. It ran a current account surplus in 2002, 2003 and 2004. Under UPA this dipped into deficit from 2006 and has spun downwards since.

3. Trade deficit:

2004: (-) $13.16 billion.

2013: (-) $180 billion.

Again, advantage NDA.

4. Fiscal deficit:

2004: 4.7% of GDP.

2013: 4.8% of GDP.

Not much to choose between the two.

Caveat: This extract from the Asian Development Bank Institute (ADBI) report, published in 2010, explains why and when the UPA government’s fiscal defict began to spiral out of control.

“The central budget in 2008–2009, announced in February 2008, seemed to continue the progress towards FRBM targets by showing a low fiscal deficit of 2.5% of GDP. However, the 2008–2009 budget quite clearly made inadequate allowances for rural schemes like the farm loan waiver and the expansion of social security schemes under the National Rural Employment Guarantee Act (NREGA), the Sixth Pay Commission award and subsidies for food, fertilizer, and petroleum.”

“These together pushed up the fiscal deficit sharply to higher levels. There were also off-budget items like the issue of oil and fertilizer bonds, which should be added to give a true picture of fiscal deficit in 2008–2009. The fiscal deficit shot up to 8.9% of GDP (10.7% including off-budget bonds) against 5.0% in 2007–2008 and the primary surplus turned into a deficit of 3.5% of GDP.

“The huge increase in public expenditure in 2008–2009 of 31.2% that followed a 27.4% increase in 2007–2008 was driven by the electoral cycle with parliamentary elections scheduled within a year of the announcement of the budget.”

The recent announcement of the Seventh Pay Commission comes again, not unexpectedly, at the end of an electoral cycle.

5. Inflation:

1998-2004: 5%.

2004-2013: 9% (Both figures are averaged out over their respective tenures).

Advantage again to NDA. Inflation under NDA was on average half that under UPA, leading to the RBI’s controversial tight money policy, high interest rates and rising EMIs.

6. External Debt:

March 2004: $111.6 billion.

March 2013: $390 billion.

The UPA suffers badly in this comparision, a result of lack of confidence in India’s economy and currency following retrospective tax legislation and other regressive policies, especially during UPA-2.

7. Jobs:

1999-2004:  60 million new jobs created.

2004-11: 14.6 million jobs created.

Clearly, the UPA’s big failure has been jobless growth – a bad electoral omen.

8. Rupee:

1998-2004: Variation: Rs. 39 to 49 per $.

2004-13: Variation: Rs. 39 to 68 per $.

(Rupee rose from 40-plus to 39 between October 2007 and April 2008.)

The NDA government’s economic and fiscal policies, despite the various crises of 1998-2000 pointed out earlier, evoked more  global confidence, leading to a relatively stable rupee (Rs. 10 variation) compared to the Rs. 29 variation during UPA’s tenure.

9. HDI:

2004: India was ranked 123^rd globally on the human development index (HDI) in 2004, with a score of 0.453.

2013: India has slipped 13 places to 136^th globally on the HDI in 2013 with a score of 0.554.

10. Subsidies:

2004: Rs. 44,327 crore.

2013: Rs. 2,31,584 crore.

Here again, profligate welfarism, as the ADBI report quoted earlier shows, has led to a rising subsidy bill. Worse, a significant amount is siphoned off by a corrupt nexus of politicians, officials and middlemen.

Conclusion: UPA scores above NDA on one of the 10 parameters (GDP growth), is level on one other parameter (fiscal deficit) while NDA does better than UPA on the remaining eight parameters.

The next time Finance Minister P. Chidambaram wishes to stage an encounter with facts, he would do well to be aware of those facts.

Sources: Economic Survey of India, UNDP, IMF, Planning Commission of India.

---------------------

Gujarat vs Bihar: settling the development debate

Minhaz Merchant in Times of India
02 August 2013,

A rational analysis of the “Gujarat and Bihar models” of development must not mix apples with oranges. Critics put India’s 35 states and union territories – big and tiny – in the same empirical basket. 

But comparing, for example, Goa’s indices with Uttar Pradesh’s is misleading on account of size, population and demographics.    

A more logical way to address the Gujarat vs. Bihar development model debate is to compare the indices of India’s 10 largest states (by population) and rank them accordingly.   

All data is from the Planning Commission of India except population data which is from the 2011 census, education data which is collated from published sources, and city GDP data which is drawn from the International Monetary Fund (IMF). 

In this study, I have chosen the following indices:

1. Per capita income;
2. Human Development Index (HDI);
3. Poverty levels;
4. Education.  

Taken together, ranking India’s 10 largest states by population across these four parameters will give us a good idea of where each state stands on income, malnutrition and social infrastructure.   

Start with the 10 largest states in descending order of population: 

State               Population (2011 census)

1. Uttar Pradesh: 199 million
2. Maharashtra: 112 million
3. Bihar: 104 million
4. West Bengal: 91 million
5. Andhra Pradesh: 85 million
6. Madhya Pradesh: 73 million
7. Tamil Nadu: 72 million
8. Rajasthan: 69 million
9. Karnataka: 61 million
10. Gujarat: 60 million 

Now rank these 10 states by per capita income – a critical indicator of prosperity.  

State            Per capita income (FY 2012)

1. Maharashtra: Rs. 1,01,314
2. Gujarat: Rs. 89,668
3. Tamil Nadu: Rs. 84,496
4. Karnataka: Rs. 69,055
5. Andhra Pradesh: Rs. 68,970
6. West Bengal: Rs. 55,222
7. Rajasthan: Rs. 53,735
8. Madhya Pradesh: Rs. 37,994
9. Uttar Pradesh: Rs. 30,051
10. Bihar: Rs. 22,691

All-India: Rs. 61,564  

Maharashtra ranks no. 1, Gujarat no. 2 and Tamil Nadu no. 3. But Maharashtra has an unfair advantage because Mumbai, India’s wealthiest city, increases its average per capita income significantly. Let’s compute the precise impact.  

The GDPs of India’s richest cities are: 

City GDPs (PPP)                                  

1. Mumbai: $209 billion                          
2. Delhi: $167 billion
3. Kolkata: $150 billion                           
4. Bangalore: $84 billion
5. Hyderabad: $74 billion                                   
6. Chennai: $66 billion
7. Ahmedabad: $52 billion                      
8. Pune: $47 billion                         

 (PPP: Purchasing Power Parity)  

If we exclude Mumbai’s $209 billion GDP from Maharashtra’s GDP (adjusting PPP GDP for exchange rate nominal GDP to align with Planning Commission figures) but keep Pune (whose $47-billion GDP is not dissimilar to the GDP of the capitals of other key states), Maharashtra’s per capita income falls from Rs. 1,01,314 to around Rs. 78,000.  

So without Mumbai (but including Pune), Maharashtra would slip to no. 3 in our per capita income chart. Gujarat would move up to no. 1, Tamil Nadu to no. 2. Bihar, with per capita income of Rs. 22,691, would stay at no. 10.  

As Rahul Sachitanand wrote in The Economic Times on August 1, 2013: “In the five years before Modi took charge, (Gujarat's) average growth in GDP was 2.8%. Under him, between 2002-03 and 2011-12, it was 10.3%. Only three small states – Sikkim, Uttarakhand  and Delhi – have grown faster. Gujarat is ahead of the national average (7.9%), as well as the two states it is pitted against in today’s discourse, Bihar (8.4%) and Madhya Pradesh (7.1%). It has leapfrogged Maharashtra to lead in factory output, grown well in agriculture, and been a leader in electricity reform and the spread of irrigation.”  

Sachitanand goes on to point out, rightly, that Gujarat "has struggled to engineer similar breakouts in its social indicators – women, health, education, poverty, wages." 

Turn now, therefore, to our second criterion – Human Development Index (HDI). 

State             HDI (2011)

1. Maharashtra: .572
2. Tamil Nadu: .570
3. Gujarat: .527
4. Karnataka: .519
5. West Bengal: .492
6. Andhra Pradesh: .473 
7. Rajasthan: .434
8. Uttar Pradesh: .380
9. Madhya Pradesh: .375
10. Bihar: .367

All-India HDI: .467 

HDI is a composite of life expectancy, education and income indices. It was created in 1990 by Amartya Sen and Pakistani economist Mahbub ul Haq. Life expectancy is correlated to social indicators such as healthcare, malnutrition, infant mortality, etc.  

Maharashtra emerges as no. 1, Tamil Nadu no. 2 and Gujarat no. 3. HDI is also correlated (though not linearly) to prosperity. Not surprisingly, therefore, these three states top the per capita income charts as well. Clearly, however, despite being ranked third among India’s 10 largest states on HDI, Gujarat needs to improve further. Bihar though is ranked last again and needs to do a lot more.

                                                          * * *

Gujarat also needs to increase its expenditure on education. It currently spends only 13.9% of total expenditure on education and is ranked a low eighth among India’s 10 largest states. In comparison, Bihar spends a higher proportion (18%) of its overall expenditure on education. Of course, Gujarat’s outlays are larger in absolute terms because of its larger overall budget but it hasn’t paid enough attention to education – and that could hurt growth in the long term unless corrected quickly.  

Education expense as a ratio of total expenditure  

1. Maharashtra: 21.0%
2. Rajasthan: 19.1%
3. West Bengal: 18.3%
4. Bihar: 18.0%
5. Uttar Pradesh: 15.9%
6. Karnataka: 15.6%
7. Tamil Nadu: 14.7%
8. Gujarat: 13.9%
9. Madhya Pradesh: 13.1%
10. Andhra Pradesh: 11.5%  

Gujarat has also been criticised for neglecting healthcare and malnutrition. While HDI, where Gujarat is ranked no. 3, captures some social indicators like infant mortality, healthcare and malnutrition, poverty levels are another important pointer to the overall quality of social infrastructure.  

Here Gujarat, while better than the all-India average, fares poorly in comparison with a state like Rajasthan. Bihar though continues to suffer twice the level of poverty of Gujarat.  

Poverty ratio (2011-12)

1. Bihar: 33.5%
2. Madhya Pradesh: 31.7%
3. Uttar Pradesh: 29.4%
4. Gujarat: 16.6%%
5. Rajasthan: 14.7% 

All-India: 21.9%

                                                                        * * *

The overall verdict:

1. Gujarat has the highest per capita income among India’s 10 largest states (when Mumbai is excluded from Maharashtra).
2. It has the third best HDI score among these large states. This is contrary to the popular belief that Gujarat favours manufacturing, industry and infrastructure at the cost of the social sector.
3. Bihar does abysmally on all criteria – per capita income, HDI, poverty levels – except education where it spends more as a ratio of its small overall expenditure than Gujarat. 

Going forward, Gujarat needs to focus on education and healthcare and further improve its HDI score. And it must focus on more equable income distribution to bring poverty levels down even faster from 16.6%, even though this is significantly better than the all-India level of 21.9% and half Bihar’s poverty level of 33.5%.  

Gujarat’s annual agricultural growth over the past decade has averaged more than 10% – triple India’s average – and it still has the country’s highest manufacturing/industry ratio-to-GDP.  

Bihar’s task is tougher. It needs to improve on all fronts. Its per capita income is one-fourth Gujarat’s and its poverty levels twice Gujarat’s. Though its annual GDP growth rate is roughly similar to Gujarat's, its low base will make it hard for it to bridge the gap for decades. It is ranked last on HDI. Its only silver lining is education – but here too, as the Chapra midday meal tragedy demonstrated, much more needs to be done to improve school infrastructure despite eight years of Nitish Kumar’s chief ministership.  

In conclusion, the Gujarat vs Bihar development model debate is a sterile one. Both states should be aiming at meeting absolute standards on economic and social criteria, not engaging in political one-upmanship.