Saturday, February 28, 2009

Publication Image Swiss Bank To Give Up Depositors' Names to Prosecutors

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Swiss Bank To Give Up Depositors' Names to Prosecutors
Evan Perez, Carrick Mollenkamp. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 19, 2009. pg. A.1
Abstract (Summary)

The agreement marks the first time Swiss financial regulators have allowed one of their banks to reveal the identity of account holders normally held secret under centuries of Swiss banking tradition. "Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts or the identity of those clients, who, with the active assistance of bank personnel, misused the confidentiality protections" that were part of tax agreements with the U.S., Mr. Kurer said.
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(c) 2009 Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.

In a significant break from Switzerland's tradition of banking secrecy, UBS AG will turn over the names of about 250 account holders as soon as Thursday as part of a $780 million settlement with U.S. prosecutors.

UBS must abide by terms of the settlement or risk being indicted, in what's known as a deferred prosecution agreement. The U.S. government has conducted a wide-ranging tax-evasion probe over the Swiss bank's offshore private-banking services for wealthy Americans.

UBS became the focus of the U.S. criminal and civil probes in 2007, when a former UBS executive, Bradley Birkenfeld, told U.S. officials that the bank allegedly began telling American customers in 2002 it wasn't required to disclose their identities to the Internal Revenue Service.

U.S. prosecutors have estimated that UBS holds an estimated $20 billion in assets for U.S. clients in accounts that it hid from U.S. authorities. These accounts generated about $200 million a year in revenues for the bank, prosecutors said.

The agreement marks the first time Swiss financial regulators have allowed one of their banks to reveal the identity of account holders normally held secret under centuries of Swiss banking tradition. Some Swiss lawmakers have opposed the move, claiming it would destroy the Swiss banking industry. Even before the U.S. agreement, many of the world's wealthy who have relied on Swiss banks have been spooked enough to move assets to other jurisdictions, according to lawyers and prosecutors.

The Securities and Exchange Commission also announced UBS agreed to pay $200 million to settle charges it violated U.S. regulations requiring its bankers to register in order to sell U.S. securities.

The agreement will settle the criminal investigation against the bank, but a civil case against UBS filed by U.S. tax authorities remains open. In that case, U.S. authorities have subpoenaed UBS to turn over the names of 19,000 clients who IRS investigators believe used UBS's services to avoid taxes.

Under Wednesday's agreement, UBS acknowledged the subpoena, but has the option to challenge it. If the bank's legal challenges are unsuccessful and it still refuses to turn over the names, U.S. prosecutors might be able to pursue new criminal charges against the bank.

The settlement puts the Swiss bank on the road to closing an embarrassing period which also included massive write-downs tied to bad bets on subprime loans. Earlier this month, UBS reported a net loss of 8.1 billion Swiss francs ($6.9 billion) for the fourth quarter, contributing to a total loss of 19.7 billion francs for 2008.

In the fourth quarter, UBS's private and business bank division had net new money outflows of 58.2 billion francs.

UBS Chairman Peter Kurer, who had said a settlement was a top priority for 2009, said in a statement the bank accepted responsibility for the improper activities and that it was committed to the settlement agreements. "UBS sincerely regrets the compliance failures in its U.S. cross-border business," Mr. Kurer said.

"Client confidentiality, to which UBS remains committed, was never designed to protect fraudulent acts or the identity of those clients, who, with the active assistance of bank personnel, misused the confidentiality protections" that were part of tax agreements with the U.S., Mr. Kurer said.

Swiss Financial Market Supervisory Authority said in a statement that it welcomed the deal and that it helped avoid "the looming threat of formal criminal charges" being filed against UBS.

The agreement "spares the government from pursuing what would have been a colossal and resource-intensive effort to prosecute UBS," said Peter D. Hardy, a former U.S. prosecutor and partner at Post & Schell in Philadelphia.

The settlement doesn't specify how many names UBS has to turn over, only that the bank will identify the owners of what prosecutors call sham entities that UBS allegedly set up for the purposes of tax evasion. It is a disclosure that no Swiss bank has made before, prosecutors said.

UBS told a Senate investigation last year that at least 250 such accounts existed.

Prosecutors in Florida have indicted one former high-level UBS executive, Raoul Weil, on charges of helping Americans evade taxes and temporarily detained a second executive as a material witness. Both executives are believed to be back in Switzerland. A U.S. judge has declared Mr. Weil a fugitive after he failed to respond to charges.

Wednesday's settlement doesn't protect Mr. Weil and potentially other UBS executives -- and possibly outside consultants. They continue to face prosecution. Mr. Weil's lawyer, Aaron R. Marcu, said in a statement late Wednesday that his client was an "innocent victim" of a political dispute between the U.S. and Switzerland. Mr. Marcu added that Mr. Weil told employees to follow Swiss and U.S. law.

Mr. Birkenfeld, the former UBS executive who tipped off U.S. officials, has pleaded guilty to the same charge of abetting tax evasion, and is helping the IRS and the Justice Department.

The IRS obtained a broad civil summons from the U.S. District Court for the Southern District of Florida in July 2008 to request that UBS hand over the names of all of its American clients, but the bank has yet to do so.

IRS Commissioner Doug Shulman said, "People who have hidden unreported income offshore need to get right with their government."

The investigation of UBS has prompted hundreds of clients to own up to a failure to pay back taxes, according to U.S. government officials and lawyers.

Under the settlement, UBS admits to allegations that the government laid out in its case against Mr. Birkenfeld, who became a cooperating witness.

According to documents included with Wednesday's settlement, bank executives had delayed until August 2007 a decision to wind down the U.S. operations, which had been profitable, because it wasn't clear whether a buyer could be found. UBS also was worried about its reputation, the documents said. During the same period, UBS was just coming to grips with losses at its investment bank.

"UBS executives knew what they were doing was illegal," said Alexander Acosta, the U.S. attorney in Miami overseeing the government's investigation into the bank. "They refused to stop this activity."

The government has described in court documents how UBS bankers allegedly lavished attention on clients, inviting them to events held at gatherings frequented by the wealthy, such as the Art Basel art fair in Miami Beach, Fla., and a tennis tournament in Key Biscayne, Fla.

Credit: By Evan Perez and Carrick Mollenkamp

WSJ Essay: The Dangers Of Turning Inward - Jeffrey E. Garten

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Essay: The Dangers Of Turning Inward
Jeffrey E. Garten. Wall Street Journal. (Eastern edition). New York, N.Y.: Feb 28, 2009. pg. W.1
Abstract (Summary)

Here was a city within a city, with ultra-modern buildings, movie theaters, restaurants with international cuisine, workout facilities, classrooms for executive education, accommodations for workers who had to stay late and communications capabilities that I had never seen in American companies. For better or worse, the forces of globalization have pushed them to urban areas to seek a better life. [...] it will be globalization that opens the world to them, allowing international agencies to pump in capital, multinational companies to help supply technology and management, and Western universities to transfer knowledge.
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[Countries are attempting to protect their own companies and workers from the economic crisis. The financial and political damage will be severe, argues Jeffrey E. Garten]

Not long ago, on a visit to Bangalore, India, I made what I thought would be a 15-minute trip to the outskirts of the city. The journey took 90 minutes on roads filled with cars, trucks, bicycles, push carts, children, all kinds of animals and giant potholes. At one point my taxi was at a dead stop for what seemed like an eternity, waiting for a small group of cows to move to the side of the road. It was dusty and noisy, filled with the sounds of buzzing scooters and honking horns.

We eventually came to our destination: the campus of Infosys, an Indian technology company with major operations around the world. Here was a city within a city, with ultra-modern buildings, movie theaters, restaurants with international cuisine, workout facilities, classrooms for executive education, accommodations for workers who had to stay late and communications capabilities that I had never seen in American companies.

Two worlds. One globalized, the other not. One that had access to the world's capital, technology and management, the other stuck in another century. Many of Infosys's management and employees came from that poorer world. I wondered what it would take to pull up the millions of others.

In the next 24 hours, approximately 180,000 people in developing countries will be moving from the countryside to cities such as Shanghai, Sao Paulo, Johannesburg. The same will happen tomorrow and every day thereafter for the next 30 years, the equivalent of creating one new New York City every two months, according to the United Nations. These men and women will need everything -- electricity, water, food, heath care, shelter, schools, computers and, of course, jobs. Many have the potential to improve not just their local environments but the world. For better or worse, the forces of globalization have pushed them to urban areas to seek a better life. And it will be globalization that opens the world to them, allowing international agencies to pump in capital, multinational companies to help supply technology and management, and Western universities to transfer knowledge.

Yet if historians look back on today's severe downturn, with its crumbling markets, rising unemployment and massive government interventions, they could well be busy analyzing how globalization -- the spread of trade, finance, technology and the movement of people around the world -- went into reverse. They would likely point to the growth of economic nationalism as the root cause.

Ordinary protectionism such as tariffs and quotas would be one aspect of this problem, but it won't be the worst of it because a web of treaties and the enforcement capabilities of the World Trade Organization will constrain the most egregious behavior. Economic nationalism is more insidious because it is broader, more subtle and subject to fewer legal constraints. It is a frame of mind that casts doubt on the very assumption that we live in a single international market, and that relatively open borders are a virtue. It is based on a calculation that despite all the talk about economic interdependence, nations can go it alone, and could be better off in doing so. True economic nationalists want above all to protect capital and jobs in their own countries. They see global commerce not as a win-win proposition but as a contest in which there is a victor and a loser. They are thus not focused on international agreements to open the world economy; to the contrary, they are usually figuring out how to avoid international commercial obligations.

The last time we saw sustained economic nationalism was in the 1930s, when capital flows and trade among countries collapsed, and every country went its own way. World growth went into a ditch, political ties among nations deteriorated, nationalism and populism combined to create fascist governments in Europe and Asia, and a world war took place. It took at least a generation for globalization to get back on track. There have been some bouts of inward-looking governmental action since then, such as the early 1970s when the U.S. cut the dollar from its gold base and imposed export embargoes on soybeans and steel scrap. However, the economic conditions were not sufficiently bad for the trend to sustain itself.

The kind of economic nationalism we are seeing today is not yet extreme. It is also understandable. The political pressures could hardly be worse. Over the last decade, the global economy grew on average about 4% to 5%, and this year it will come to a grinding halt: 0.5% according to the International Monetary Fund, where projections usually err on the optimistic side. World trade, which has grown much faster than global gross domestic product for many years, is projected to decline this year for the first time since 1982. Foreign direct investment last year slumped by 10% from 2007. Most dramatically, capital flows into emerging market nations are projected to drop this year by nearly 80% compared to 2007.

The aggregate figures don't tell the story of what is unraveling in individual countries. In the last quarter of 2008, U.S. GDP dropped by 6.2% at an annual rate, the U.K. by 5.9%, Germany by 8.2%, Japan by 12.7% and South Korea by 20.8%. Mexico, Thailand and Singapore and most of Eastern Europe are also in deep trouble. In every case, employment has been plummeting. So far popular demonstrations against government policies have taken place in the U.K., France, Greece, Russia and throughout Eastern Europe. And the governments of Iceland and Latvia have fallen over the crisis.

Governments could therefore be forgiven if they are preoccupied above all with the workers and companies within their own borders. Most officials don't know what to do because they haven't seen this level of distress before. They are living from day to day, desperately improvising and trying to hold off political pressure to take severe measures they know could be satisfying right now but cause bigger damage later. Thinking about how their policies might affect other countries is not their main focus, let alone taking the time to try to coordinate them internationally.

Besides, whether it's in Washington, Brussels, Paris, Beijing, Brazilia or Tokyo, it is hard to find many top officials who wouldn't say that whatever measures they are taking that may undermine global commerce are strictly temporary. They all profess that when the crisis is over, they will resume their support for globalization. They underestimate, however, how hard it could be to reverse course.

Political figures take comfort, too, from the global institutions that were not present in the 1930s -- the IMF, the World Bank and the World Trade Organization, all of which are assumed to be keeping globalization alive. This is a false sense of security, since these institutions are guided by sovereign countries. Government officials often feel that because they are going to endless crisis summit meetings -- the next big one is in London on April 2, when the world's top 20 nations will be assembling -- that some international coordination is actually taking place. This is mostly an illusion. With a few exceptions, such as the so-called Plaza Agreements of 1984 when currencies were realigned, it is difficult to point to a meeting where anything major has been said and subsequently implemented.

But as the pressure on politicians mounts, decisions are being made on an incremental and ad hoc basis that amounts to a disturbing trend.

Classic trade protectionism is on the rise. In the first half of 2008, the number of investigations in the World Trade Organization relating to antidumping cases -- selling below cost -- was up 30% from the year before. Washington has recently expanded sanctions against European food products in retaliation for Europe's boycott against hormone-treated American beef -- an old dispute, to be sure, but one that is escalating.

In the last several months, the E.U. reintroduced export subsidies on butter and cheese. India raised tariffs on steel products, as did Russia on imported cars. Indonesia ingenuously designated that just a few of its ports could be used to import toys, creating a trade-blocking bottleneck. Brazil and Argentina have been pressing for a higher external tariff on imports into a South American bloc of countries called Mercosur. Just this week, the E.U. agreed to levy tariffs on American exports of biodiesel fuel, possibly a first shot in what may become a gigantic trade war fought over different environmental policies -- some based on taxes, some on regulation, some on cap and trade -- being embraced by individual countries.

Much bigger problems have arisen in more non-traditional areas and derive from recent direct intervention of governments. The much-publicized "Buy America" provision of the U.S. stimulus package restricts purchases of construction-related goods to many U.S. manufacturers, and although it is riddled with exceptions, it does reveal Washington's state of mind. The bailout of GM and Chrysler is a purely national deal. Such exclusion against foreign firms is a violation of so-called "national treatment" clauses in trade agreements, and the E.U. has already put Washington on notice that it will pursue legal trade remedies if the final bailout package is discriminatory.

Uncle Sam is not the only economic nationalist. The Japanese government is offering to help a broad array of its corporations -- but certainly not subsidiaries of foreign companies in Japan -- by purchasing the stock of these firms directly, thereby not just saving them but providing an advantage over competition from non-Japanese sources. The French government has created a sovereign wealth fund to make sure that certain "national champions," such as car-parts manufacturer Valeo and aeronautics component maker Daher, aren't bought by foreign investors.

Government involvement in financial institutions has taken on an anti-globalization tone. British regulators are pushing their global banks to redirect foreign lending to the U.K. when credit is sorely needed and where it can be monitored. Just this past week, the Royal Bank of Scotland announced it was closing shop in 60 foreign countries. Western European banks that were heavily invested in countries such as Hungary, the Czech Republic and the Baltics have pulled back their credits, causing a devastating deflation throughout Eastern Europe. The Swiss are reportedly considering more lenient accounting policies for loans their banks make domestically as opposed to abroad.

This de-globalizing trend could well be amplified by Washington's effort to exercise tight oversight of several big financial institutions. Already AIG's prime Asian asset, American International Assurance Company, is on the block. As the feds take an ever bigger stake in Citigroup, they may well force it to divest itself of many of its prized global holdings, such as Banamex in Mexico and Citi Handlowy in Poland. It appears that new legislation under the Troubled Asset Relief Program will also restrict the employment of foreign nationals in hundreds of American banks in which the government has a stake.

Whether or not it goes into bankruptcy, General Motors will be pressed to sell many of its foreign subsidiaries, too. Even Chinese multinationals such as Haier and Lenovo are beating a retreat to their own shores where the risks seem lower than operating in an uncertain global economy. The government in Beijing is never far away from such fundamental strategic decisions.

Then there is the currency issue. Economic nationalists are mercantilists. They are willing to keep their currency cheap in order to make their exports more competitive. China is doing just that. A big question is whether other Asian exporters that have been badly hurt from the crisis -- Taiwan, South Korea and Thailand, for example -- will follow suit. Competitive devaluations were a major feature of the 1930s.

It's no accident that the European Union has called an emergency summit for this Sunday to consider what to do with rising protectionism of all kinds.

There are a number of reasons why economic nationalism could escalate. The recession could last well beyond this year. It is also worrisome that the forces of economic nationalism were gathering even before the crisis hit, and have deeper roots than most people know. Congress denied President Bush authority to negotiate trade agreements two years ago, fearing that America was not benefiting enough from open trade, and an effort to reform immigration was paralyzed for years. Globally, international trade negotiations called the Doha Round collapsed well before Bear Stearns and Lehman Brothers did. Concerns that trade was worsening income distribution were growing in every major industrial nation since the late 1990s.

Whenever countries turned inward over the past half-century, Washington was a powerful countervailing force, preaching the gospel of globalization and open markets for goods, services and capital. As the Obama administration works feverishly to fire up America's growth engines, patch up its financial system and keep its housing market from collapsing further, and as its major long-term objectives center on health, education and reducing energy dependence on foreign sources, the country's preoccupations are more purely domestic than at any time since the 1930s.

In the past, American business leaders from companies such as IBM, GE, Goldman Sachs and, yes, Citigroup and Merrill Lynch beat the drum for open global markets. As their share prices collapse, some voices are muted, some silenced. It is not easy to find anyone in America who has the stature and courage to press for a more open global economy in the midst of the current economic and political crosswinds.

And given that the global rot started in the U.S. with egregiously irresponsible lending, borrowing and regulation, America's brand of capitalism is in serious disrepute around the world. Even if President Obama had the mental bandwidth to become a cheerleader for globalization, America's do-as-I-say-and-not-as-I-do leadership has been badly compromised.

If economic nationalism puts a monkey wrench in the wheels of global commerce, the damage could be severe. The U.S. is a good example. It is inconceivable that Uncle Sam could mount a serious recovery without a massive expansion of exports -- the very activity that was responsible for so much of America's economic growth during the middle of this decade. But that won't be possible if other nations block imports.

For generations, the deficits that we have run this past decade and the trillions of dollars we are spending now mean we will be highly dependent on foreign loans from China, Japan and other parts of the world. But these will not be forthcoming at prices we can afford without a global financial system built on deep collaboration between debtors and creditors -- including keeping our market open to foreign goods and services.

The Obama administration talks about a super-competitive economy, based on high-quality jobs -- which means knowledge-intensive jobs. This won't happen if we are not able to continue to bring in the brightest people from all over the world to work and live here. Silicon Valley, to take one example, would be a pale shadow of itself without Indian, Chinese and Israeli brain power in its midst.

More generally, without an open global economy, worldwide industries such as autos, steel, banking and telecommunications cannot be rationalized and restructured efficiently, and we'll be doomed to have excessive capacity and booms and busts forever. The big emerging markets such as China, India, Brazil, Turkey and South Africa will never be fully integrated into the world economy, depriving them and us of future economic growth. The productivity of billions of men and women entering the global workforce will be stunted to everyone's detriment.

Of course, no one would say that globalization is without its problems. Trade surges and products made by low-priced labor can lead to job displacement and increasing income inequality. Proud national cultures can be undermined. But these challenges can be met by reasonable regulation and by domestic policies that provide a strong social safety net and the kind of education that helps people acquire new skills for a competitive world. With the right responses of governments, the benefits should far outweigh the disadvantages. For thousands of years, globalization has increased global wealth, individual choice and human freedom.

The point is, economic nationalism, with its implicit autarchic and save-yourself character, embodies exactly the wrong spirit and runs in precisely the wrong direction from the global system that will be necessary to create the future we all want.

As happened in the 1930s, economic nationalism is also sure to poison geopolitics. Governments under economic pressure have far fewer resources to take care of their citizens and to deal with rising anger and social tensions. Whether or not they are democracies, their tenure can be threatened by popular resentment. The temptation for governments to whip up enthusiasm for something that distracts citizens from their economic woes -- a war or a jihad against unpopular minorities, for example -- is great. That's not all. As an economically enfeebled South Korea withdraws foreign aid from North Korea, could we see an even more irrational activity from Pyongyang? As the Pakistani economy goes into the tank, will the government be more likely to compromise with terrorists to alleviate at least one source of pressure? As Ukraine strains under the weight of an IMF bailout, is a civil war with Cold War overtones between Europe and Russia be in the cards?

And beyond all that, how will economically embattled and inward-looking governments be able to deal with the critical issues that need global resolution such as control of nuclear weapons, or a treaty to manage climate change, or help to the hundreds of millions of people who are now falling back into poverty?

To say that there is an obvious antidote to the rise of economic nationalism is to brush off the powerful pressures that have created it. It wouldn't be enough for President Obama to make a great speech demonstrating his determination to head off anti-global trends. Neither can any one summit turn the tide, nor any one piece of legislation.

It would be an achievement if the WTO publicized and named and shamed anti-global measures that governments were taking. Shoring up the IMF and the World Bank to help poorer countries deal with economic stress would be a good idea, too. Developing far-reaching trade adjustment policies consisting of education, training, wage insurance and other forms of community support for those people clobbered by imports will be valuable, because it would reduce protectionist pressure. Making a Herculean effort to conclude the global trade agreement that now languishes in Geneva and designing and implementing a treaty on climate change would also be a great shot in the arm. And if the efforts under way in Europe and in the U.S. to reform banking regulation could be brought under one roof -- a new global banking regulator -- in place of what could otherwise turn out to be competing and conflicting systems, that would be a breakthrough.

But the most powerful medicine for the disease of economic nationalism would be a short-lived recession. Under any circumstances, it will take years of work for government and business leaders to get the world back on the globalization train. The sooner that work can begin, the better.


Jeffrey E. Garten is a professor at the Yale School of Management and chairman of Garten Rothkopf, a global advisory firm. He held economic- and foreign-policy posts in the Nixon, Ford, Carter and Clinton administrations.

Credit: By Jeffrey E. Garten

Thursday, February 26, 2009

Salman Ahmad: Rescuing Pakistan from the Taliban - On Faith at

Salman Ahmad: Rescuing Pakistan from the Taliban - On Faith at

Rescuing Pakistan from the Taliban

In its 60-plus turbulent years as an independent country, Pakistan has been held together by its music, poetry, films, literature and sports. Pakistan is an overwhelmingly Muslim nation, but culture -- not religion -- is the glue that binds people in this critical U.S.-allied country.

But now the Taliban are grafting an alien form of Islam onto Pakistan, with dire consequences for Pakistanis, the region and possibly the world. Earlier this month the Pakistani government and army made a deal with the Taliban and gave them control of the Swat valley. The government ceded this region near the Afghan border after countless suicide attacks resulted in the loss of many military and civilian lives.

President Asif Ali Zardari's ill-conceived appeasement will only embolden the Taliban and may squelch more of Pakistan's voices of peace just when Pakistanis and the world need to hear them most.

In Swat and elsewhere in the North-West Frontier Province, arts and culture are under attack, as are women's rights. The city of Swat used to be a haven for arts, music and tourism. There is now eerie silence. The Taliban have shut down girls' schools, imposed sharia law and destroyed music shops. Cinemas are being locked down. The fanatics' idea is simple: to asphyxiate Pakistan's rich and vibrant culture and replace it with their own.

President Obama has promised to listen to the Muslim world. The president and Secretary of State Hillary Clinton and Pakistan and Afghanistan envoy Richard Holbrooke can start by listening to Pakistani artists who embody peace, modernity and cross-cultural dialogue.

For the past 20 years Pakistani music and pop culture has built a national and global following. The late Nusrat Fateh Ali Khan, the iconic Qawwali singer, collaborated with Peter Gabriel and Eddie Vedder of Pearl Jam. Pakistani rock bands and singers like Junoon, Strings, Jal and Atif Aslam have been huge draws in India, America and Europe. Last year Pakistani director Shoaib Mansoor's movie In the Name of God was a box office hit in both Pakistan and India. The film portrays the difficulties of being a liberal Muslim in Pakistan after 9/11 -- something that's just getting harder.

The U.S. has an important role to play. America must help strengthen Pakistani civil society - the artists, humanitarians and educators who have braved military dictators, corrupt politicians and religious fanatics and are the most natural American allies against extremism. By promoting Pakistani-American creative collaborations in films, television and music, the U.S. would be empowering the voices that the Taliban seek to silence the most. But with the Taliban creeping into mainstream Pakistan that window of opportunity is diminishing by the day.

Suicide bomb attacks and a weak economy in Pakistan have forced multinationals to pull their sponsorship of rock music festivals. Most Pakistani rock bands, artists and film makers are being intimidated to find other work. Some artists, like pop star Junaid Jamshed, have left music to become proselytizers for Islamic missionary movements. Pakistani artists, comedians and actors who had been working in India have been forced to return since the terrorist attacks in Mumbai in November 2008. Indian visas for Pakistani artists have now been severely restricted.

Those restrictions help no one and must be lifted immediately. Nothing is more frightening to a terrorist than to see Indian and Pakistani artists collaborating in films and music and performing freely in each others' countries. That's why I got death threats from terrorists when my band Junoon performed in Kashmir in May 2008. We ignored them and the concert -- the first rock concert to be held in the conflicted Himalayan territory between Pakistan and India -- was a huge hit with thousands of Kashmiri college kids.

The United Nations also has a role. Terrorists who use Islam as an excuse to launch their attacks on innocents need to be countered by Islamic scholars who represent the U.N. member states. Islamic scholars from Muslim majority nations, America and the West need a global platform like the U.N. to send messages condemning the killing of innocents and labeling such actions un-Islamic.

The killing off of arts and culture in Swat is an ominous sign. It is the first step in the potential Talibanization of more of the country. If you give the Taliban an inch - as Zardari has done - they will take a mile.

Pakistan, India, the U.S. and the rest of the world all have a stake in peace and conflict resolution in South Asia. For President Obama to make good on his promise to mend fences with the Muslim world, he'll have to tackle South Asian problems including the dispute over Kashmir. But he can start with something that should be much easier: speaking up for the artists, poets and musicians that give South Asians our deepest sense of self.

America needs a culture envoy and not just a political envoy for South Asia. To help the region win its war against the fanatics, President Obama should encourage the same kind of dialogue that the great Muslim emperor Akbar did. For 50 years, Akbar presided over peace and cultural harmony. Both will be lost if we allow the extremists to win.

Organizing for America | Presidential Address

Organizing for America | Presidential Address
Madame Speaker, Mr. Vice President, Members of Congress, and the First Lady of the United States:

I’ve come here tonight not only to address the distinguished men and women in this great chamber, but to speak frankly and directly to the men and women who sent us here.

I know that for many Americans watching right now, the state of our economy is a concern that rises above all others. And rightly so. If you haven’t been personally affected by this recession, you probably know someone who has – a friend; a neighbor; a member of your family. You don’t need to hear another list of statistics to know that our economy is in crisis, because you live it every day. It’s the worry you wake up with and the source of sleepless nights. It’s the job you thought you’d retire from but now have lost; the business you built your dreams upon that’s now hanging by a thread; the college acceptance letter your child had to put back in the envelope. The impact of this recession is real, and it is everywhere.

But while our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this:

We will rebuild, we will recover, and the United States of America will emerge stronger than before.

The weight of this crisis will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and universities; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth. Those qualities that have made America the greatest force of progress and prosperity in human history we still possess in ample measure. What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more.

Now, if we’re honest with ourselves, we’ll admit that for too long, we have not always met these responsibilities – as a government or as a people. I say this not to lay blame or look backwards, but because it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament.

The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank. We have known for decades that our survival depends on finding new sources of energy. Yet we import more oil today than ever before. The cost of health care eats up more and more of our savings each year, yet we keep delaying reform. Our children will compete for jobs in a global economy that too many of our schools do not prepare them for. And though all these challenges went unsolved, we still managed to spend more money and pile up more debt, both as individuals and through our government, than ever before.

In other words, we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.

Well that day of reckoning has arrived, and the time to take charge of our future is here.

Now is the time to act boldly and wisely – to not only revive this economy, but to build a new foundation for lasting prosperity. Now is the time to jumpstart job creation, re-start lending, and invest in areas like energy, health care, and education that will grow our economy, even as we make hard choices to bring our deficit down. That is what my economic agenda is designed to do, and that’s what I’d like to talk to you about tonight.

It’s an agenda that begins with jobs.

As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day that would put people back to work and put money in their pockets. Not because I believe in bigger government – I don’t. Not because I’m not mindful of the massive debt we’ve inherited – I am. I called for action because the failure to do so would have cost more jobs and caused more hardships. In fact, a failure to act would have worsened our long-term deficit by assuring weak economic growth for years. That’s why I pushed for quick action. And tonight, I am grateful that this Congress delivered, and pleased to say that the American Recovery and Reinvestment Act is now law.

Over the next two years, this plan will save or create 3.5 million jobs. More than 90% of these jobs will be in the private sector – jobs rebuilding our roads and bridges; constructing wind turbines and solar panels; laying broadband and expanding mass transit.

Because of this plan, there are teachers who can now keep their jobs and educate our kids. Health care professionals can continue caring for our sick. There are 57 police officers who are still on the streets of Minneapolis tonight because this plan prevented the layoffs their department was about to make.

Because of this plan, 95% of the working households in America will receive a tax cut – a tax cut that you will see in your paychecks beginning on April 1st.

Because of this plan, families who are struggling to pay tuition costs will receive a $2,500 tax credit for all four years of college. And Americans who have lost their jobs in this recession will be able to receive extended unemployment benefits and continued health care coverage to help them weather this storm.

I know there are some in this chamber and watching at home who are skeptical of whether this plan will work. I understand that skepticism. Here in Washington, we’ve all seen how quickly good intentions can turn into broken promises and wasteful spending. And with a plan of this scale comes enormous responsibility to get it right.

That is why I have asked Vice President Biden to lead a tough, unprecedented oversight effort – because nobody messes with Joe. I have told each member of my Cabinet as well as mayors and governors across the country that they will be held accountable by me and the American people for every dollar they spend. I have appointed a proven and aggressive Inspector General to ferret out any and all cases of waste and fraud. And we have created a new website called so that every American can find out how and where their money is being spent.

So the recovery plan we passed is the first step in getting our economy back on track. But it is just the first step. Because even if we manage this plan flawlessly, there will be no real recovery unless we clean up the credit crisis that has severely weakened our financial system.

I want to speak plainly and candidly about this issue tonight, because every American should know that it directly affects you and your family’s well-being. You should also know that the money you’ve deposited in banks across the country is safe; your insurance is secure; and you can rely on the continued operation of our financial system. That is not the source of concern.

The concern is that if we do not re-start lending in this country, our recovery will be choked off before it even begins.

You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll.

But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending, families can’t afford to buy homes or cars. So businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.

That is why this administration is moving swiftly and aggressively to break this destructive cycle, restore confidence, and re-start lending.

We will do so in several ways. First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small business loans to the consumers and entrepreneurs who keep this economy running.

Second, we have launched a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and re-finance their mortgages. It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values – Americans who will now be able to take advantage of the lower interest rates that this plan has already helped bring about. In fact, the average family who re-finances today can save nearly $2000 per year on their mortgage.

Third, we will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy.

I understand that on any given day, Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions. But such an approach won’t solve the problem. And our goal is to quicken the day when we re-start lending to the American people and American business and end this crisis once and for all.

I intend to hold these banks fully accountable for the assistance they receive, and this time, they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer. This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.

Still, this plan will require significant resources from the federal government – and yes, probably more than we’ve already set aside. But while the cost of action will be great, I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade. That would be worse for our deficit, worse for business, worse for you, and worse for the next generation. And I refuse to let that happen.

I understand that when the last administration asked this Congress to provide assistance for struggling banks, Democrats and Republicans alike were infuriated by the mismanagement and results that followed. So were the American taxpayers. So was I.

So I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you – I get it.

But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job – our job – is to solve the problem. Our job is to govern with a sense of responsibility. I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage.

That’s what this is about. It’s not about helping banks – it’s about helping people. Because when credit is available again, that young family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend, and if they can get a loan too, maybe they’ll finally buy that car, or open their own business. Investors will return to the market, and American families will see their retirement secured once more. Slowly, but surely, confidence will return, and our economy will recover.

So I ask this Congress to join me in doing whatever proves necessary. Because we cannot consign our nation to an open-ended recession. And to ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system. It is time to put in place tough, new common-sense rules of the road so that our financial market rewards drive and innovation, and punishes short-cuts and abuse.

The recovery plan and the financial stability plan are the immediate steps we’re taking to revive our economy in the short-term. But the only way to fully restore America’s economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world. The only way this century will be another American century is if we confront at last the price of our dependence on oil and the high cost of health care; the schools that aren’t preparing our children and the mountain of debt they stand to inherit. That is our responsibility.

In the next few days, I will submit a budget to Congress. So often, we have come to view these documents as simply numbers on a page or laundry lists of programs. I see this document differently. I see it as a vision for America – as a blueprint for our future.

My budget does not attempt to solve every problem or address every issue. It reflects the stark reality of what we’ve inherited – a trillion dollar deficit, a financial crisis, and a costly recession.

Given these realities, everyone in this chamber – Democrats and Republicans – will have to sacrifice some worthy priorities for which there are no dollars. And that includes me.

But that does not mean we can afford to ignore our long-term challenges. I reject the view that says our problems will simply take care of themselves; that says government has no role in laying the foundation for our common prosperity.

For history tells a different story. History reminds us that at every moment of economic upheaval and transformation, this nation has responded with bold action and big ideas. In the midst of civil war, we laid railroad tracks from one coast to another that spurred commerce and industry. From the turmoil of the Industrial Revolution came a system of public high schools that prepared our citizens for a new age. In the wake of war and depression, the GI Bill sent a generation to college and created the largest middle-class in history. And a twilight struggle for freedom led to a nation of highways, an American on the moon, and an explosion of technology that still shapes our world.

In each case, government didn’t supplant private enterprise; it catalyzed private enterprise. It created the conditions for thousands of entrepreneurs and new businesses to adapt and to thrive.

We are a nation that has seen promise amid peril, and claimed opportunity from ordeal. Now we must be that nation again. That is why, even as it cuts back on the programs we don’t need, the budget I submit will invest in the three areas that are absolutely critical to our economic future: energy, health care, and education.

It begins with energy.

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we’ve fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders – and I know you don’t either. It is time for America to lead again.

Thanks to our recovery plan, we will double this nation’s supply of renewable energy in the next three years. We have also made the largest investment in basic research funding in American history – an investment that will spur not only new discoveries in energy, but breakthroughs in medicine, science, and technology.

We will soon lay down thousands of miles of power lines that can carry new energy to cities and towns across this country. And we will put Americans to work making our homes and buildings more efficient so that we can save billions of dollars on our energy bills.

But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. And to support that innovation, we will invest fifteen billion dollars a year to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America.

As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not, and will not, protect them from their own bad practices. But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it. Scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it.

None of this will come without cost, nor will it be easy. But this is America. We don’t do what’s easy. We do what is necessary to move this country forward.

For that same reason, we must also address the crushing cost of health care.

This is a cost that now causes a bankruptcy in America every thirty seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. In the last eight years, premiums have grown four times faster than wages. And in each of these years, one million more Americans have lost their health insurance. It is one of the major reasons why small businesses close their doors and corporations ship jobs overseas. And it’s one of the largest and fastest-growing parts of our budget.

Given these facts, we can no longer afford to put health care reform on hold.

Already, we have done more to advance the cause of health care reform in the last thirty days than we have in the last decade. When it was days old, this Congress passed a law to provide and protect health insurance for eleven million American children whose parents work full-time. Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy, and save lives. It will launch a new effort to conquer a disease that has touched the life of nearly every American by seeking a cure for cancer in our time. And it makes the largest investment ever in preventive care, because that is one of the best ways to keep our people healthy and our costs under control.

This budget builds on these reforms. It includes an historic commitment to comprehensive health care reform – a down-payment on the principle that we must have quality, affordable health care for every American. It’s a commitment that’s paid for in part by efficiencies in our system that are long overdue. And it’s a step we must take if we hope to bring down our deficit in the years to come.

Now, there will be many different opinions and ideas about how to achieve reform, and that is why I’m bringing together businesses and workers, doctors and health care providers, Democrats and Republicans to begin work on this issue next week.

I suffer no illusions that this will be an easy process. It will be hard. But I also know that nearly a century after Teddy Roosevelt first called for reform, the cost of our health care has weighed down our economy and the conscience of our nation long enough. So let there be no doubt: health care reform cannot wait, it must not wait, and it will not wait another year.

The third challenge we must address is the urgent need to expand the promise of education in America.

In a global economy where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity – it is a pre-requisite.

Right now, three-quarters of the fastest-growing occupations require more than a high school diploma. And yet, just over half of our citizens have that level of education. We have one of the highest high school dropout rates of any industrialized nation. And half of the students who begin college never finish.

This is a prescription for economic decline, because we know the countries that out-teach us today will out-compete us tomorrow. That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education – from the day they are born to the day they begin a career.

Already, we have made an historic investment in education through the economic recovery plan. We have dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life. We have made college affordable for nearly seven million more students. And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children’s progress.

But we know that our schools don’t just need more resources. They need more reform. That is why this budget creates new incentives for teacher performance; pathways for advancement, and rewards for success. We’ll invest in innovative programs that are already helping schools meet high standards and close achievement gaps. And we will expand our commitment to charter schools.

It is our responsibility as lawmakers and educators to make this system work. But it is the responsibility of every citizen to participate in it. And so tonight, I ask every American to commit to at least one year or more of higher education or career training. This can be community college or a four-year school; vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma. And dropping out of high school is no longer an option. It’s not just quitting on yourself, it’s quitting on your country – and this country needs and values the talents of every American. That is why we will provide the support necessary for you to complete college and meet a new goal: by 2020, America will once again have the highest proportion of college graduates in the world.

I know that the price of tuition is higher than ever, which is why if you are willing to volunteer in your neighborhood or give back to your community or serve your country, we will make sure that you can afford a higher education. And to encourage a renewed spirit of national service for this and future generations, I ask this Congress to send me the bipartisan legislation that bears the name of Senator Orrin Hatch as well as an American who has never stopped asking what he can do for his country – Senator Edward Kennedy.

These education policies will open the doors of opportunity for our children. But it is up to us to ensure they walk through them. In the end, there is no program or policy that can substitute for a mother or father who will attend those parent/teacher conferences, or help with homework after dinner, or turn off the TV, put away the video games, and read to their child. I speak to you not just as a President, but as a father when I say that responsibility for our children's education must begin at home.

There is, of course, another responsibility we have to our children. And that is the responsibility to ensure that we do not pass on to them a debt they cannot pay. With the deficit we inherited, the cost of the crisis we face, and the long-term challenges we must meet, it has never been more important to ensure that as our economy recovers, we do what it takes to bring this deficit down.

I’m proud that we passed the recovery plan free of earmarks, and I want to pass a budget next year that ensures that each dollar we spend reflects only our most important national priorities.

Yesterday, I held a fiscal summit where I pledged to cut the deficit in half by the end of my first term in office. My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs. As you can imagine, this is a process that will take some time. But we’re starting with the biggest lines. We have already identified two trillion dollars in savings over the next decade.

In this budget, we will end education programs that don’t work and end direct payments to large agribusinesses that don’t need them. We’ll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we’re not paying for Cold War-era weapons systems we don’t use. We will root out the waste, fraud, and abuse in our Medicare program that doesn’t make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.

In order to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2% of Americans. But let me perfectly clear, because I know you’ll hear the same old claims that rolling back these tax breaks means a massive tax increase on the American people: if your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime. In fact, the recovery plan provides a tax cut – that’s right, a tax cut – for 95% of working families. And these checks are on the way.

To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive health care reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.

Finally, because we’re also suffering from a deficit of trust, I am committed to restoring a sense of honesty and accountability to our budget. That is why this budget looks ahead ten years and accounts for spending that was left out under the old rules – and for the first time, that includes the full cost of fighting in Iraq and Afghanistan. For seven years, we have been a nation at war. No longer will we hide its price.

We are now carefully reviewing our policies in both wars, and I will soon announce a way forward in Iraq that leaves Iraq to its people and responsibly ends this war.

And with our friends and allies, we will forge a new and comprehensive strategy for Afghanistan and Pakistan to defeat al Qaeda and combat extremism. Because I will not allow terrorists to plot against the American people from safe havens half a world away.

As we meet here tonight, our men and women in uniform stand watch abroad and more are readying to deploy. To each and every one of them, and to the families who bear the quiet burden of their absence, Americans are united in sending one message: we honor your service, we are inspired by your sacrifice, and you have our unyielding support. To relieve the strain on our forces, my budget increases the number of our soldiers and Marines. And to keep our sacred trust with those who serve, we will raise their pay, and give our veterans the expanded health care and benefits that they have earned.

To overcome extremism, we must also be vigilant in upholding the values our troops defend – because there is no force in the world more powerful than the example of America. That is why I have ordered the closing of the detention center at Guantanamo Bay, and will seek swift and certain justice for captured terrorists – because living our values doesn’t make us weaker, it makes us safer and it makes us stronger. And that is why I can stand here tonight and say without exception or equivocation that the United States of America does not torture.

In words and deeds, we are showing the world that a new era of engagement has begun. For we know that America cannot meet the threats of this century alone, but the world cannot meet them without America. We cannot shun the negotiating table, nor ignore the foes or forces that could do us harm. We are instead called to move forward with the sense of confidence and candor that serious times demand.

To seek progress toward a secure and lasting peace between Israel and her neighbors, we have appointed an envoy to sustain our effort. To meet the challenges of the 21st century – from terrorism to nuclear proliferation; from pandemic disease to cyber threats to crushing poverty – we will strengthen old alliances, forge new ones, and use all elements of our national power.

And to respond to an economic crisis that is global in scope, we are working with the nations of the G-20 to restore confidence in our financial system, avoid the possibility of escalating protectionism, and spur demand for American goods in markets across the globe. For the world depends on us to have a strong economy, just as our economy depends on the strength of the world’s.

As we stand at this crossroads of history, the eyes of all people in all nations are once again upon us – watching to see what we do with this moment; waiting for us to lead.

Those of us gathered here tonight have been called to govern in extraordinary times. It is a tremendous burden, but also a great privilege – one that has been entrusted to few generations of Americans. For in our hands lies the ability to shape our world for good or for ill.

I know that it is easy to lose sight of this truth – to become cynical and doubtful; consumed with the petty and the trivial.

But in my life, I have also learned that hope is found in unlikely places; that inspiration often comes not from those with the most power or celebrity, but from the dreams and aspirations of Americans who are anything but ordinary.

I think about Leonard Abess, the bank president from Miami who reportedly cashed out of his company, took a $60 million bonus, and gave it out to all 399 people who worked for him, plus another 72 who used to work for him. He didn’t tell anyone, but when the local newspaper found out, he simply said, ''I knew some of these people since I was 7 years old. I didn't feel right getting the money myself."

I think about Greensburg, Kansas, a town that was completely destroyed by a tornado, but is being rebuilt by its residents as a global example of how clean energy can power an entire community – how it can bring jobs and businesses to a place where piles of bricks and rubble once lay. "The tragedy was terrible," said one of the men who helped them rebuild. "But the folks here know that it also provided an incredible opportunity."

And I think about Ty’Sheoma Bethea, the young girl from that school I visited in Dillon, South Carolina – a place where the ceilings leak, the paint peels off the walls, and they have to stop teaching six times a day because the train barrels by their classroom. She has been told that her school is hopeless, but the other day after class she went to the public library and typed up a letter to the people sitting in this room. She even asked her principal for the money to buy a stamp. The letter asks us for help, and says, "We are just students trying to become lawyers, doctors, congressmen like yourself and one day president, so we can make a change to not just the state of South Carolina but also the world. We are not quitters."

We are not quitters.

These words and these stories tell us something about the spirit of the people who sent us here. They tell us that even in the most trying times, amid the most difficult circumstances, there is a generosity, a resilience, a decency, and a determination that perseveres; a willingness to take responsibility for our future and for posterity.

Their resolve must be our inspiration. Their concerns must be our cause. And we must show them and all our people that we are equal to the task before us.

I know that we haven’t agreed on every issue thus far, and there are surely times in the future when we will part ways. But I also know that every American who is sitting here tonight loves this country and wants it to succeed. That must be the starting point for every debate we have in the coming months, and where we return after those debates are done. That is the foundation on which the American people expect us to build common ground.

And if we do – if we come together and lift this nation from the depths of this crisis; if we put our people back to work and restart the engine of our prosperity; if we confront without fear the challenges of our time and summon that enduring spirit of an America that does not quit, then someday years from now our children can tell their children that this was the time when we performed, in the words that are carved into this very chamber, "something worthy to be remembered." Thank you, God Bless you, and may God Bless the United States of America.

Wednesday, February 25, 2009

The Indian Railway King — The American, A Magazine of Ideas

The Indian Railway King — The American, A Magazine of Ideas

How did India’s Huey Long become its Jack Welch?

NEW DELHI—In his boyhood, long before Lalu Yadav became India’s most unlikely management guru, he sometimes strayed from his cows and scampered barefoot to the railroad tracks. Dodging crowds and porters, he made his way to the first-class cars and, for a few glorious moments, basked in the air conditioning that blasted from the open door. Then the police would spot him and shoo him away, into the moist trackside cowflap where he belonged.

The boy has grown up, but when I meet him in his New Delhi office, he’s still barefoot, and a headache for train conductors everywhere. Lalu Yadav, 61, is now the boss of all 2.4 million Indian Railways employees. When he wants air conditioning, he nods, and a railway employee hops up to twist the dial. As minister of railways, he rules India’s largest employer—one with annual revenues in the tens of billions—from a fine leather sofa, his sandals and a silver spittoon on the floor nearby and a clump of tobacco in his cheek.

Lalu is a happy man: happy to have risen to become rich, beloved, and reviled all over India; happy that a grateful nation credits him with whipping its beleaguered rail system into profitability; and happy that he’s managed to do all this and somehow stay out of jail. Under his leadership, Indian Railways has gone from bankruptcy to billions in just a few years. When Lalu presented his latest budget to Parliament on February 13, he bragged, "Hathi ko cheetah bana diya" ("I have turned an elephant into a cheetah"). What’s his secret?

“Cow dung,” he says. “I have 350 cows, including bulls. Cow dung—no need of gas.” Everyone tells me about Lalu’s “rustic common sense,” though I’m unsure how burning manure for fuel has made Indian trains suddenly run profitably. But his point is a broad one, about systems efficiency and country wisdom and resourcefulness. “Railways is like a Jersey cow. If you do not milk it fully, it gets tenail,” a swollen and infected udder. Milk every last drop out of Indian Railways, Lalu told his subordinates, and it will prosper.

Only Bollywood does more to unite India than its railways.

The folksiness is no pose. Lalu really did begin as a cow-boy, and he has spent (or misspent) a 40-year career in politics exploiting his bovine roots. Since he became nationally famous in the 1980s, Lalu has been known throughout India as a corrupt and unapologetic yokel, eerily canny in his political maneuvering and cleverer than he looks and sounds.

In his home state of Bihar, where he first rose to power, the common touch served him well. Bihar is India’s poorest and most backward state. In the 1980s and 1990s, Lalu knitted together a coalition of poor Biharis that elected him chief minister. The Lalu years wrecked Bihar further. When corruption allegations surfaced, critics demanded that Lalu resign on moral grounds. The scandal that brought him down, known as the “Fodder Scam,” effectively amounted to a government-wide ruse under which taxpayers paid for nonexistent hay. But Lalu held on for a long time. “I have heard of football grounds and cricket grounds, but not moral grounds,” he said. When the pressure became too great for him to stay in office, he responded with a nepotistic masterstroke, bold even by his standards, and appointed his wife, Rabri Devi, to rule in his place. (“Who do you want me to appoint?” Lalu asked. “Your wife?”)

Lalu may have been corrupt, but he was also a laugh riot. He speaks in an outrageously backwoods Hindi dialect, full of barnyard metaphor and hick wisdom. Even his detractors admit his speech is often charming. “He’s a hugely charismatic man,” says Sankarshan Thakur, a Bihari journalist and Lalu critic. “His ability to reach out beyond language barriers is amazing. He charmed the pants off the Pakistanis,” Thakur says, during government-to-government talks in 2006. On any given day on India’s flourishing array of cable channels, the chances are high of seeing Lalu’s face on a news show, or even on an entertainment show. I clicked randomly to see him guest-judging what looked like an Indian knock-off of “American Idol.” In 2005, a popular Indian film based on “A Fish Called Wanda” took Lalu’s name for its title—“Padmashree Laloo Prasad Yadav”—even though it had nothing to do with Lalu, other than having main characters with his names.

The rest of India chuckled at Lalu, and more often with him. But Bihar remained the most lawless state in the country. “He never tried to do serious business in Bihar regarding development,” says Sushil Kumar Modi, Bihar’s current deputy chief minister, and a Lalu acquaintance for nearly 40 years. “Lalu Yadav is not a serious man. Not a single state-sponsored scheme happened under his rule. He thought, ‘If I can rig the elections, there is no need to do any work.’” Thakur is more damning: “He arrived promising to dismantle the Establishment, an anti-hero out to snatch power from Patna’s bungalows and deliver it to the people, but he ended up a creature of the Establishment himself.” By the time Rabri—a semiliterate buffalo herder who did Lalu’s bidding, and whose name, incidentally, means “Custard Goddess”—left office in 2005, everyone in India knew Lalu, and his name was a byword for incompetence, cronyism, and the abject failure of government.

Even then, Lalu commanded enough of a following among his coalition of “extremely backward castes” (or, in the wonderful semiofficial abbreviation, “EBCs”) and desperately poor Muslims to secure a role for himself in India’s 2004 Congress Party government. He wanted the interior ministry, but the new government wasn’t ready to have a rube in charge of such a powerful portfolio. They gave him the railways ministry, and many expected the same pitiful misrule that had characterized his time in Bihar.

Indian Railways was in trouble: in 2001, a report by the BJP—a government dominated by the Brahmins who are Lalu’s permanent foes—predicted it would hemorrhage cash at a rate of $12 billion annually by 2015. (The whole budget of the Indian government, by comparison, is $128 billion.) Indian Railways was barely managing to cover its daily operating costs, to say nothing of paying for the new equipment and strengthening bridges. The report concluded: “It is very likely that Indian Railways would be a heavily-loss-making entity—in fact one well on the path toward bankruptcy, if it were not state owned.” Outsiders whispered the word “privatization” but were hushed: Indian Railways has been a source of national pride since before independence, and statist sentimentalists could never let it fail.

Lalu’s term as railways minister has been shockingly successful. Instead of turning India’s most prized national institution into a basketcase and a ruin, Lalu has led one of most spectacular economic turnarounds in a country bursting with economic miracles. Indian Railways began raking in cash and posting surpluses in the billions. And the intelligentsia and technocracy, at first shocked and dismayed that a shameless populist had seized a fragile and unwieldy national institution, have largely come around to acknowledging that India Railways has been transformed into a respected institution—and so, possibly, has Lalu.

Only Bollywood does more to unite India than its railways. The statistics beggar belief: every year, Indians take 5.4 billion train trips, 7 million per day in suburban Mumbai alone. New Delhi Station sees daily transit of 350,000 passengers, which is roughly five times more than New York’s LaGuardia Airport, and enough to make Grand Central look like Mayberry Junction. The railways’ total track mileage rivals the length of the entire U.S. Interstate Highway system, even though the United States is three times the size of India. Among human resource problems, the railways of India are an Everest. Its employees outnumber Wal-Mart’s by a figure comparable to the population of Pittsburgh. The world’s only larger employer is the People’s Liberation Army of China. (The third-largest employer is the British National Health Service.)

The cerebral cortex of the whole system is the Rail Bhavan, a pinkish monolith near Parliament in New Delhi. The Rail Bhavan is, in a way, surrounded by its own competition: its street is permanently filled with the traffic of taxis, trucks, buses, and rickshaws that for a time seemed poised to steal away the rails’ business altogether. Outside, a decommissioned green locomotive and the railways’ mascot, Bholu the Elephant, announce to the mess of traffic that the railways are not to be counted out.

Inside, the conditions do not inspire confidence. The building is big, disordered, and honeycombed with offices that bear stultifying bureaucratic titles (“Manager, Zonal Railways, Deputy”). The hallways all have torn-up ceilings. Some are so dark that I have to use a pocket flashlight to read names on the doors, and inside the offices the level of technology is shockingly low. Employees’ business cards have Yahoo! addresses. P.K. Sharma, the bright and competent director of personnel, has on his desk a foot-high pile of green folders bound together with shoelaces. From that desk, 2.5 million lives are managed, and there is not a computer in sight.

The world has few centrally managed organizations as large as Indian Railways, and surely none maintains the same level of performance.

Indian Railways is a government enterprise, and it has the dead weight characteristic of state organs. Employees live in housing provided by the Railways, send their kids to Railways schools, and visit Railways doctors when sick. Nearly a million are pensioners, and therefore provide no value to the ministry at all. Those who do work encounter predictable bureaucratic headaches: the ministry’s departments (six in total, for electrical, staff, engineering, mechanical, traffic, and financial concerns) operate in a stovepipe fashion, with minimal cross-pollination and little effort to coordinate and ensure that the railways as a whole run well. And ultimately Indian Railways has to answer to the taxpayers and citizens who support it, and who quite understandably want assurances that their train set will keep its fares low enough for them to afford.

Somehow it all works out. The world has few centrally managed organizations as large as Indian Railways, and surely none maintains the same level of performance. Delays are inevitable. But even when disaster strikes—as when terrorists bombed tracks in Mumbai in 2006—the railway heals itself quickly, usually within days, like a starfish growing back its arm. To grasp the difficulty of the operation, just imagine running a much bigger version of Wal-Mart, and then add a few wild cards, such as an employee literacy rate of 60 percent and terrorists trying to blow up your stores.


As chief minister of Bihar, Lalu may have been a buffoon and a grifter, but he didn’t fail entirely. And the ways in which he courted failure, but didn’t quite succumb to it, offer a clue as to how Lalu has succeeded at the railways ministry.

He plundered Bihar like every Bihari leader before him. Lalu’s great innovation was to entertain the masses, and to dignify their suffering with a show of attention. He held court at the chief minister’s residence and listened to common people’s grievances. Even if he ultimately did nothing to ease their pain, they left knowing that they had spoken to the most powerful man in the state, and he had responded in the same dialect they spoke to their own friends and family. When his children fell sick, Lalu himself stood in line with them at the public clinic. Never mind that the lines were long, and the treatment horrifying, because kleptocrats had looted the public coffers: Biharis saw their chief minister waiting like a poor, ordinary man, so they forgave him for being rich and extraordinary.

At Indian Railways, Lalu retained that popular touch and remade the passenger experience accordingly. A key feature of train travel, even in the cheap seats, is tea service. Lalu banned plastic teacups, which had been littering the countryside, and replaced them with peasant-made kullhars—earthen mugs that after a single use can be smashed on the ground, where they then return to the mud from which they are fired. He employed weavers to make bedding out of khadi (homespun cloth). And to avenge his childhood eviction from the air-conditioned cars, he introduced a new class of service: garib rath, “the poor man’s chariot,” on which the single frill is air conditioning. Despite boasting this once unimaginable luxury, garib rath is extremely cheap, within reach of even the backward castes from which Lalu himself hails.

But his single most important innovation at Indian Railways was not a populist move at all. It was an elite one: the hiring of a prodigiously talented civil servant named Sudhir Kumar. Kumar, 50, is from a Gujarati family in Punjab. The family knows business: “If there is money lying around, we can smell it,” Kumar says. His father was a clothing wholesaler, and his brothers and sisters have, according to Sudhir, made a fortune in business for themselves. Sudhir takes pride in having given up the joys of free enterprise to work for the government, a calling he regards as nobler and more satisfying than work done for personal gain. He clambered over thousands of competitors to land in his current job as a member of the Indian Administrative Service (IAS), a sort of Delta Force for Indian civil servants. Every year, out of 300,000 aspirants, no more than 60 make the grade. They fan out all over India to solve the subcontinent’s most intractable problems, before heading back to New Delhi to regroup and take their next assignment.

Kumar’s first big assignment was Bihar. Bihar broke up into two smaller states in 2000: Jharkhand, which contained rich mineral and coal deposits, and Bihar, which had the larger population by far. Bihar stood to lose over half its tax revenue. (When Japanese businessmen expressed interest in the mineral wealth and promised to bring prosperity to the stricken region, a joke circulated: “Give us mineral rights,” the businessmen told Lalu, “and within six months, Bihar will be like Japan.” “That’s nothing,” Lalu said. “Give me Japan for six weeks, and it will be like Bihar.” It’s a testament to Lalu’s brazenness that this exchange seems plausible.) Kumar’s job had been to separate the two states in a way that allowed each to establish a sufficient tax base within seven years. He did it in 30 months by closing loopholes in the tax code, cutting deals with tax cheats, and in general collecting taxes with an intensity most Indians would reserve for a cricket match or a ground war.

Lalu noticed. When he ascended to the railways ministry in 2005, he requested Kumar as his deputy. Kumar had risen to an IAS position so elite that his move required parliamentary approval, which quickly arrived. The Congress Party’s coalition government, now led by the Oxford-trained economist Manmohan Singh, prized technical competence and was happy to appoint a shrewd bureaucrat to watch over its most unlettered cabinet member.

Lalu plundered Bihar like every Bihari leader before him. His great innovation was to entertain the masses, and to dignify their suffering with a show of attention.

Since then, Kumar has labored in an office immediately opposite Lalu’s, but completely unlike the minister’s opulent, wood-paneled lair. The minister lounges on his sofa, watching NDTV, a TV news network. Kumar’s two flat-screens show real-time data on the country’s main routes. Periodically, a minion walks into Kumar’s command center to present a 20-page stack of papers that represent the day’s statistics on passengers, freight, and on-time arrivals. “Like Jack keeps a daily tab, I also keep a daily tab,” Kumar says, referring to Jack Welch, one of his idols. The contrast with Lalu’s own listless inattention is jarring. When Lalu tells me about his success, mumbling vaguely about winning “the confidence of the business classes,” Kumar shouts from the back of the room, citing revenue figures from memory. And when Lalu drifts off on earthy tangents about dung or latrine systems (“urine—it fall all over the platform”), Kumar winces.

Lalu and Kumar rule the railways ministry as twin consuls, and they rule it well. Officers snap to attention and salute when they pass in the corridors. In his relatively spartan office, Kumar’s sole concessions to luxury are a private bathroom, an attendant who refreshes his tea constantly, and an unshakeable air of dry superiority that would be less tolerable, were he not the brains behind several industry-changing decisions.

None of the innovations was original. All sound, in retrospect, like no-brainers: make the trains faster, heavier, and longer. Kumar wrinkled his nose when I pointed this out. “A five-billion-dollar no-brainer!”

Political considerations precluded hiking fares, which in any event were often so low that a huge increase would bring in only a little more revenue. (With unlimited-travel passes in Mumbai costing as little as $2 per month, it’s a mystery why Indian Railways collects passenger fares on some routes at all.) And none of the standard remedies for weak businesses—selling off under-performing assets, or laying off employees—could happen, because Lalu forbade anything that could make him look unfriendly to the poor. “People used to say about Jack that he will nuke every damn thing which is not profit-making,” Kumar complains. “But I can’t nuke anything, because of the political imperatives. I had to serve an omelet to the nation without breaking any eggs whatsoever.”

The first and most crucial change was born from the minister’s own whimsy. In his first month as railways chief, Lalu visited a railway stop in Danapur, Bihar, for a spot inspection of the freight. The demand was ridiculous: since the station lacked an in-motion weigh bridge, railwaymen had to remove every item from a train and weigh it on a small industrial scale. Lalu lounged nearby, supervising the workmen from his chair, like a zamindar in the days of the Raj. The scale pinned at just a couple hundred kilos, and the train was rated for a thousand tons of freight. “My minister was new,” Kumar says, “and no one had the courage to tell him that this wasn’t the way it could be done.” Eventually, the station manager mustered the courage to inform Lalu that he would have to sit for a full week watching the operation, and that he should give up, go home, and rest. Lalu, showing the stubbornness of a newcomer, instead demanded that the whole train re-route to Muri, roughly 250 miles away, whose station had a larger scale.

When the workers weighed the car and found it overloaded, Lalu demanded that every train in India be weighed at once, at one of the 30 weigh bridges. Overloading turned out to be rife, and the minister, incensed at the possibility that employees and customers were defrauding the railways, visited Kumar. “If you are carrying this load in any case, and I haven’t seen your tracks damaged, why are you not charging for it? If your locomotives are in any case carrying this load, why the hell you can’t increase the axle load?”

“The only disgruntled element in this exercise was the employees and customers who were part of this hanky-panky,” Kumar says. (Lalu himself is more triumphant: “Some mafias were working in this business. I caught them and punished them!”) The spot inspection served as a pivot from which Indian Railways as a whole could reform itself. The change ultimately became a billion-dollar improvement in the revenues of the railways.

The decision did entail some risk: heavier axle loads mean greater wear on tracks and bridges, and therefore greater need to replace infrastructure. If a train derailed, the public would blame heavier axle loads, and the minister would have to resign. But Kumar says Lalu’s friendly relationship with his public gave him more room to accept risk. “My mother has taught me to take the bull by the horns,” Lalu said. “If you try to take it by the tail, it will kick you in the ass.” “No other minister could summon the courage to do this,” Kumar explains.

His single most important innovation at Indian Railways was not a populist move at all. It was an elite one: the hiring of a prodigiously talented civil servant named Sudhir Kumar.

The move to heavier axle loads looks like an obvious move in retrospect, but similar actions at other railways have required years of study and bureaucratic maneuvering, says Steve Ditmeyer, an American railroad expert who has studied the Indian Railways turnaround. To move to heavier loads means making sure the part of the surge in revenue from the extra freight—really the same amount of freight, just more paid freight—needs to be set aside for a faster rate of track replacement. Lalu demanded from on high that axle loads increase. Kumar studied the problem and implemented the order, coordinating with department heads and India’s independent safety commissioner.

“The Railways was struggling with this problem for the last 25 years, but they didn’t have the consensus” necessary to make the change, Kumar says. “This one small inspection brought about that consensus.”

In addition, Kumar and his team began examining the competition more closely. In the 1990s, Indian Railways had so exasperated customers that even cement manufacturers, whose dense product is perfect for rail travel, had shifted their share of the logistics market to trucking. Indian Railways’s share of their business fell from 71 percent in 1991 to 30 percent in 2004—even though Indian roads are terrible, and unlike trains, trucks must clear customs, pay taxes, and pay off tax inspectors at the borders between each of India’s 33 mainland states and union territories.

The system had been rigged to handicap trucks by imposing bureaucratic requirements at borders. But in most other respects, trucks were simpler: Indian Railways maintained a complex tariff card, which the British drafted in the 1860s and which still included a range of archaic commodities. With corrigenda, it fattened to the size of a phone book.

“If you have to hire a truck driver, he’ll just ask, ‘If you want to hire my truck, I’ll charge 40 thousand rupees,’” Kumar says. “Even if you’re carrying an empty box, you have to pay full charge. So we said, ‘Why the hell Railways are getting into this mess?’” The tariff card shrunk to the size of a postcard (even though it still specifies rates for jute and “edible salts”). With that reform Kumar and Lalu began working closely with industry to recapture market share, and to outsource the difficulty of filling freight cars efficiently to their customers. “Whatever you carry,” Kumar says, using a favorite phrase, “it’s your funeral.”

In previous regimes, Indian Railways assumed a monopoly position. “We are not in the business of railways,” Kumar says. “We are in the business of transportation. And we have competitors.” Industry members echoed the position. One told me that the previous leadership of the ministry had rationed out the railways’ services, whereas now close attention is paid to customer demand. A logistics manager at a Calcutta manufacturing giant likened the succession of business-friendly measures to the succession of record-setting pole vaults by the Soviet athlete Sergei Bubka—an endless series of efforts to outdo oneself.

At the same time, Kumar engineered a system under which inspections of trains took place after a fixed number of kilometers of service, rather than after every trip. Trains languished for shorter times in railyards. And increased freight and passenger business—in part the result of cozier relations with industry and passenger enthusiasm for innovations such as Lalu’s garib rath—meant that each train could add several extra cars, and unit cost plummeted by as much as 50 percent. Adding cars generated plenty of bottom-line revenue: the trains were already going, so the cost of adding an extra car was marginal.

Underlying all this, Kumar tells me with undisguised pride, working off a PowerPoint presentation seemingly designed to show up the BJP committee that predicted doom for Indian Railways seven years ago, is an insight borrowed from India’s telecom boom: bigger is better. “Which is a bigger play on scale or volume?” he asks. “If you were to build Indian Railways today, it would cost you not less than a trillion dollars. But once the network is laid”—like the initial outlay for India’s mobile towers—“the less one unit costs. What applies to telecom equally applies to me.”

Lalu’s success owes everything to Kumar, but Kumar deflects the praise back to the minister—most of it, anyway. “This is a democracy. I have only the power and clout that he gives me, and I am a big zero without him. The day he decides he does not need the services of Sudhir Kumar, within hours I am gone.”

But there’s glory in the turnaround for Kumar, too. During our conversations, a bespectacled young doctoral student from Columbia University interrupts us to show Kumar manuscript pages from a book they are coauthoring about the turnaround. And Kumar’s agenda included a meeting with a major commercial publisher. Kumar has brought in American and French experts on railway management—including Ditmeyer—and solicited reports from them that invariably mention his own role in the transformation.

‘Boys and girls from Harvard, they come to me,’ Lalu bragged, slapping the soft sole of his bare foot with a crack to stress the irony.

I asked Kumar whether the temptation of private-sector work would eventually draw him out of the IAS. His response was curt. “There is no temptation, sir. The kind of satisfaction you get there is nothing compared to the satisfaction of serving my country.” He put down his papers, and his offended expression melted into a look of pain. “My father,” the prosperous clothier, “said, ‘Go to serve the people.’ He uttered these words, and within four hours, he was no more. I am living with that every single day.” He put down his stack of papers. “When you are giving shape to the dream of your father—what better way to self-actualize?” Even in the language of Tony Robbins, the speech is affecting. At this the tears welled up, and the prince of the railways wept into his tea.

Bringing in Kumar clearly helped Lalu instill professionalism in the ministry. But it was equally vital that he did not bring the crew his critics expected. Lalu’s first acts included an outright ban on his own cronies and family members in the Rail Bhavan. In Bihar, they had lurked on the sidelines, awaiting patronage from the chief minister. The corruption reached ridiculous levels: when I visited in 2001, media murmured about malfeasance in the state’s smallpox eradication program. It was regarded as suspect that the state employed several people to guard against a disease that since the 1970s had existed only in heavily guarded vials in Atlanta, Georgia. Bandits (“dacoits,” in Indian English) plagued the countryside and kidnapped anyone with money. Sometime, they put obstacles on the train tracks, so they could plunder the cars, each a curry-scented movable feast of defenseless passengers and freight.

In 2008, I returned to see how Bihar had fared under three years of rule by Nitish Kumar, a longtime Lalu foe and, not coincidentally, the minister of railways who preceded Lalu. I mentioned to Lalu that I planned to visit Bihar. He seemed unconcerned about dirt I might dig up, and said I should greet the manager of the Maurya Patna, the city’s only international-standard hotel. “They buy my milk.” When I added that I would not fly, but would take his “poor man’s chariot,” he jerked to attention and warned me gravely, with a wag of the finger, to hold my belongings tightly and to avoid accepting food from strangers on the train, lest I be poisoned and robbed.

I arrived in Patna safely. In Lalu’s absence, everything had improved—even the railway station itself. It is still no Grand Central, and if it had an Oyster Bar I’d probably skip the raw ones. But its third-class waiting room can no longer be described (in the words of my old guidebook) as “an underground car-park for human bodies.” The city of Patna had once resembled a medieval warren. Now, in the busy streets, pissy stenches singe the nose not constantly, but only in a few informally designated areas. The hotels have sold out their rooms for wedding parties. And at night, the Mayfair Ice Cream Parlor is packed with kids, and the ice cream probably won’t give you the runs.

Years after Biharis voted him out, Lalu’s picture is still everywhere—in shops, on banners over the road, and even, I am told, on bathroom doors (in lieu of men’s and women’s stick figures, they sometimes use portraits of Lalu and Rabri). But the people who speak to me do not remember Lalu fondly. In the years since Nitish Kumar came to power, the city has flourished, and the state government has fought against the gangsterism that pervaded the countryside. Eight years ago, in Patna and the rural areas alike, murders and kidnappings were common. Now, as in most Indian cities, the greatest safety risk is the traffic. On the train back to New Delhi, a man in my railway berth offered me raisins, and I felt safe enough to try one.


Lalu mismanaged Patna terribly. So how has he managed a gargantuan state organ so well that students from Kellogg and Wharton are taking notice?

Part of the answer lies in India’s recent economic growth spurt: Lalu stood on the shoulders of an economy that never grew by less than 6 percent per year during his whole tenure as railways minister. (India’s economy has slowed considerably since the global downturn began.) With a boom like that to fuel demand, how could he fail? All he had to do was sit back and let the market propel him forward. Indeed, Sushil Kumar Modi, the politician who claims to be picking up after Lalu’s mess in Bihar, notes that Lalu still spends all his time in Bihar, and rarely visits his own New Delhi office. The railway turnaround began before he took over the ministry, during Nitish Kumar’s reign, although few predicted that it would continue as it has. The most cynical of his critics expect to discover after Lalu has left the ministry that safety corners have been cut, and that his successor will have to deal with a series of derailments and bridge collapses. But outsiders such as Ditmeyer say that Lalu’s management has been fundamentally sound, assuming he’s making the proper investments in maintenance.

‘If he is held responsible for failure,’ Kumar complained, ‘he should be responsible for success as well.’

The other half of the explanation, though, seems to be a simple case of democracy and markets working. One of the salutary effects of India’s recent boom is that people such as Lalu have more opportunities to be measured, and even civil servants such as Kumar are eventually subjected to the same pitiless bottom-line scrutiny that businesses face. Only recently did India really begin to shake off its penchant for state-owned enterprise. By the time Lalu took over, it was no longer possible for Indian Railways to run as if it were a monopoly in the transportation sector, or as if it were a Lalu fiefdom, as Bihar was for so long.

Sankarshan Thakur, the journalistic gadfly who wrote a caustic account of Lalu’s failure in Bihar, says Lalu is managing the railroads competently as penance for his mismanagement of Bihar. “Lalu got insecure,” Thakur says. “He was sorely wounded by defeat in Bihar, and he needed to recover.” The railways ministry is a constituency-building ministry, one that allows a politician to be observed succeeding. He had failed in Bihar, and if he hoped ever to recover the leadership he once enjoyed, he had to run the railways ministry with exemplary competence. Everyone is watching, including the peasants. Lalu’s constituents are now not only voters but customers. Biharis kicked him out once already, and he’s acting responsibly so they don't do it again.

Lalu is aware of his new publicity, and he courts it. David Blair, a railways expert from Washington, D.C., brought a delegation of students to meet Lalu and was shocked to discover that a camera crew lay waiting to record their visit. “Boys and girls from Harvard, they come to me,” Lalu bragged, slapping the soft sole of his bare foot with a crack to stress the irony.

After our conversation, Kumar joined me for lunch at the Shangri-La Hotel. The Shangri-La competes with Imperial and the Oberoi for New Delhi’s business visitors, and on that summer day, foreigners in navy and black suits waited with us for the buffet to open. To wear a suit in India during the summer bespeaks either total ignorance of the oppressive humidity, or—surely the case with these men—an expectation of door-to-door travel from one four-star air-conditioned paradise to the next. These men lived the life Kumar passed up when he joined the civil service, and which his brothers and sisters apparently still enjoy.

While a waiter filled our glasses with ice water, Sudhir kept making the case for his boss. Be wary of Lalu’s critics, he said. They’re a jealous bunch, and hypocrites to boot. They criticize him for his Bihar failures, but then overlook his railway success. “When Lalu presented his first budget to Parliament, everyone said Lalu had been busy campaigning in Bihar, so Dr. Manmohan Singh”—India’s current prime minister and former finance minister—“had drafted this budget. They could not internalize that it came from Lalu-ji, because he’s a shepherd or farmer or whatever.”

“If he is held responsible for failure,” Kumar complained, “he should be responsible for success as well.” Kumar was pleased with that line, and nodded across the table to the Columbia economist, as if to remind him to save it for their book. And as for Lalu’s successors, Kumar warned, they’ll be subjected to a higher standard than before. “If they revert back to two-percent growth, Parliament will not accept it. A democracy will not accept it.”

Lalu, in all his rustic ignorance, had chosen not only a shrewd businessman but a political philosopher, self-actualized equally by his business savvy and patriotic self-abnegation. Kumar stood up grandly, strode to the vegetarian entrees, inserted his shoulder firmly amid the businessmen, and triumphantly spooned out some korma.

Graeme Wood is a staff editor at The Atlantic.

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Arise Awake Stop not till the goal is reached. - Swami Vivekananda Swami ji is my inspiration, not as a monk but as a social reformer and for his universal-ism.