Before you say ‘May Warren Anderson rot in Hell’

When the news regarding the death of Warren Anderson, the CEO of the Union Carbide corporation at the time of the Bhopal Gas Tragedy surfaced, the Indian public had only one thing to say — May you rot in Hell, Anderson. Next day, when The New York Times paid an obituary to the man who rose from a humble beginning as a son of an immigrant plumber to become the Chairman of the world’s 3rd largest chemical company, it didn’t please Indians one bit. They believed Anderson escaped justice from being tried and punished by Indian courts for genocide. And that Karma would take care of him “in the next life”.

The anti-Congress folks are still furious with then Prime Minister Rajiv Gandhi, allegedly under pressure from the US government, for letting Anderson escape to America scot-free. The leftists like P. Sainath use the disaster to criticize what they think was unregulated capitalism at work. Bhopal marked the horrific beginning of a new era, one that signaled the collapse of restraint on corporate power, he once wrote. Almost everyone believes the cause of the accident was a profit seeking corporation, in the face of losses, blatantly ignored government mandated safety regulations. The colonial narrative seeks the people to believe that an American-owned company hardly valued the lives of third world people.

But was this all to the event considered to be one of the worst industrial disasters ever? How could a company, which had Safety First as its motto be so irresponsible? How come there weren’t any eyebrow raising accidents at Union Carbide’s Sevin plant in Virginia, similar in design with the Bhopal plant but which was at least 7 times bigger. Kamal Pareek, a young Indian engineer sent to America for training, marveled at the work ethic and comprehensive safety mechanisms in place at the Virginia plant.

“It was a pleasure working with those American engineers. They were so professional, so attentive to details, where as we Indians often have a tendency to overlook them. If they weren’t satisfied, they wouldn’t let us move on to the next stage. For weeks on end, we made a concerted effort with our American colleagues to imagine every possible incident and its consequences.”

So, for a company so immaculate in its approach, how did they let this tragic accident happen? What led to the fall in the operating standards and safety precautions when it came to the Bhopal plant? If there are bigger ideological issues at play, what are they?

Demons of Carbide Past

The first time an average Indian comes to know about Bhopal is in the school chemistry classroom when learning about the isocyanate functional group. We go on to learn about the hazardous nature of Methyl Isocyanate (MIC). MIC is a highly toxic compound with a very low boiling point and can only be stored in stainless steel or gas jars. On reaction with water, it violently releases toxic gases, which is what happened in Bhopal.

Had India, in 1970s, when the plant started operations, the infrastructure and human resources to handle and safely store such a poisonous gas?

What were the origins of the plant and why did Union Carbide have to set up the plant of such toxic nature in the first place?

History

It was in 1934 that Union Carbide Corporation started its operations in the British India. Starting off with importing and selling batteries, they eventually set up battery manufacturing plant and became a household name under the brand Eveready batteries, powering torches in the remotest villages of India in an era where villages didn’t have electricity but housed 86% of the population.

With India’s independence in 1947, the whole industrial and business atmosphere changed. The Industrial policy resolutions of 1948 and 1956, Jawaharlal Nehru, as the Prime Minister and de facto Chairman of National Planning Commission, laid out the pattern of a socialist economy, espousing the middle path between public and private enterprise, allowing government to interfere and encroach without restraint, on the freedoms of the private industry. To add to this, the Congress government inspired by Swadeshi philosophy of Gandhiji, curtailed foreign investment in India and dissuaded movement of innovation into India by coercive insistence on ‘technology transfer’ regardless of domestic human resource capabilities to handle such advanced technologies.

Where technology is available in India, it must be preferred to foreign technology (regardless of the quality). All technology, once imported into India, is Indian technology. It should not be paid for beyond a period of five years. — Industrial Policy, 1948

As a result in 1956, following the Companies Act enacted that year, Union Carbide Corporation was forced to sell off 40% of its holding in its Indian subsidiary, of which most was bought by Indian government through public sector banks and companies and it became Union Carbide India Limited (UCIL). At the time of the accident, the Govt of India was holding almost 25% of it.

1957, Union Carbide Corporation (USA), after three years of rigorous research created the pesticide SEVIN (brand name of Carbaryl). It was discovered that DDT, then the most popular pesticide had become harmful to humans via bio-accumulation and ineffective against pests. UCC invented SEVIN at a serendipitous moment and to prove its harmlessness to humans, photographs flashed in newspapers, of UCC’s scientists tasting a few granules of SEVIN. MIC is one of the main ingredients of SEVIN. It is awe inspiring what human genius is capable of, producing a totally innocuous substance from such a deadly toxin. SEVIN’s huge success in rescuing Egypt’s cotton crop in 1961, which averted an economic disaster for the country, catapulted it to worldwide popularity.

India’s Green Revolution

1960’s India was reeling under food shortages so much that Lal Bahadur Shastri had to call upon all Indians to fast once in a week. Under Public Law-480, the United States, through Red Cross, donated 870 metric tons of SEVIN to assist India’s quest for self-sufficiency in food production in their Green Revolution. Taking this as an opportunity, UCIL expanded its operations into agricultural sector through pesticides. After taking relevant permissions from the Indian government, UCIL initially only imported technical grade SEVIN from UCC, diluted it with local inert agents, packaged and then sold it across India.

India’s Economic Policies Taking Effect

For importing SEVIN, UCIL was required to pay UCC in US dollars. However there was a severe “dollar shortage” in India at that time. Added to that, the Indian government’s protectionist policies did not look favourably on UCIL’s dependence of imported SEVIN and pressurized the company to produce it locally. The dollar shortage issue is not some unknown or unexplainable phenomena. Its a case of an economic fallacy that governments in india have been indulging in since independence. They believe that prices can be fixed by government diktats. In this case, Indian government arbitrarily fixed the exchange rate, thus over-valuing the rupee vis-a-vis the US dollar. This move depleted Indian foreign exchange reserves.

When a currency is overvalued by decree (rupee, in this case), people rush to exchange it for the undervalued currency(US dollar, in this case) at the bargain rates; this causes a surplus of overvalued currency (rupee), and a shortage of the undervalued currency (dollar). The rate, in short, is prevented from moving to clear the exchange market. In the present world, foreign currencies have generally been overvalued relative to the dollar. The result has been the famous phenomenon of the “dollar shortage”. — Murray Rothbard, 1961

In a free market economy, there wouldn’t be dollar shortage in the first place, since the price of the rupee vis-a-vis the dollar fluctuates to reflect its true value. Governments overvalue their currencies for the sake of prestige but mainly to control their people’s economic freedoms. And as Friedrich Hayek says, to be controlled in our economic pursuits means to be controlled in everything, which is the actual objective of a socialist state. As a testimony to that, at that time, one needed permissions from RBI to even travel abroad.

Even though UCC had operations in 38 countries, Bhopal’s was its only SEVIN plant outside the US. Had it not been for these web of governmental controls and convoluted policies, there wouldn’t have been any need to establish this high-risk plant in India. As it would prove later, the cost of producing SEVIN locally was 3 and a half times it cost to import from the US.

Government Involvement

Based on the Planning Commission’s demand projections, which themselves are based on faulty statistical models of the National Sample Survey Organisation, UCIL applied for government’s permission to set up a plant to produce 5000 MT of SEVIN every year in Bhopal, India. In a free market scenario, a company does its own market research, and if their methods are faulty, they themselves bear the burden of failure.

While the government gave its permission to set it up, it also gave itself an important role to play by imposing a host of conditions. SEVIN, the trade name for the insecticide Carbaryl is produced by reacting α-naphthol with MIC in a process called Carbamoylation. Broadly, this required an α-naphthol manufacturing unit, a MIC manufacturing unit and a Carbamoylation unit. However, UCC was not keen on building an α-naphthol manufacturing unit because the only major use of α-naphthol was the manufacture of SEVIN insecticide. Also SEVIN had been in the market for over 12 years. Insects slowly adapt themselves to insecticides, making them ineffective and thus UCC planned to replace SEVIN within next five to eight years. Their research and development department was already in possession of several replacement molecules. None of them required α-naphthol. UCIL, therefore, thought it was unnecessary to build an α-naphthol plant when it could just import it for a fraction of the cost. However, the politicians and the bureaucrats thought otherwise and political decisions came to replace rational business and scientific decisions. They insisted UCIL develop a local technology to manufacture α-naphthol. Lack of indigenous expertise meant the plant never came to be built and thus the fiasco ended with million of dollars being burnt to no avail.

The Tyranny of Foreign Exchange Regulation Act

In 1974, to assert the idea of ‘Indianisation’ even more, the Indira Gandhi government enacted Foreign Exchange Regulation Act. This act would further curtail foreign investors and their equity in Indian subsidiaries. It even restricted and controlled the employment of non-resident and foreign nationals in India. As a result, UCIL had to kowtow to the government every time they needed to keep a foreign expert at the plant. Under this act, a new set of rules were framed to decrease the share in the equity of foreign holders. This led to UCC decreasing its holding from 60 to 50.9%. Because of the tyranny they unleashed, most foreign companies shut their Indian subsidiaries. Nearly 40% of the companies shut their Indian operations between 1973 and 1980. This included companies like IBM and Coca Cola, which were forced to reveal their trade secrets. Today, we have our PM Modi, going from pillar to post to attract foreign investments, but back then they harassed and drove them away. How times have changed.

UCIL was given permission to import the design of the plant from UCC but all the aspects of construction of the plant were mandated to be indigenous. UCC was kept at an arm’s length during detailed designing and implementation. Hence, UCC, in its design transfer agreement legally absolved itself of all responsibility in case of any mishap. Had there been no out-of-court settlement, this disclaimer would have been in prime focus and UCC could have gotten away without paying even a single penny in compensation. This could probably also be the reason for Indian government letting Anderson leave the country.

Market Distortion

In the late 1970s, the Indian government gave incentives to small manufacturers to produce second-grade, less effective pesticides, which they sold at half the price of SEVIN . Parallelly the government also gave farmers subsidies to buy these pesticides . All this resulted in selling of less than 1000 metric tonnes of SEVIN, while the Bhopal plant was designed to produce 5 times that amount based on the Planning Commission’s projections.

This, like many other incidents, proved the futility of centralized planning of an economy. In a nation of a billion people, when each individual undertakes independent economic action or inaction, like even the small act of drinking a cup of tea, affects the economy. It is impossible for a single central authority to decide and predict the movement of the economy. UCIL should have done its own market research but it was not possible when the government was dictating its every move.

The Bhopal operation was never profitable for UCIL. In 1984, the plant incurred a loss of USD 4 million, resulting in skilled workers leaving for greener pastures. Even the existing employees’ started losing morale.

Plugging the losses

The final link between UCIL and UCC was Warren Woomer. He was a fine engineer who had trained Indian engineers at the Virginia plant and was appointed as the workers’ manager who was responsible for the safety of the plant from 1980, when the MIC plant started operation, to 1982. In 1982, as per FERA Indianization policy, he was sent back by the Indian government, after which UCIL gradually lost interest in running the plant and started contemplating on shutting it down. Also the government asked the UCIL to end all the foreign collaboration with the UCC as soon as possible. The interim extension given by the government for UCC-UCIL collaboration was to end in January 1985 . The accident happened in December, 1984.

UCIL had to replace Woomer with a senior manager from UCIL’s Kolkata battery manufacturing unit was given the task of plugging losses at the Bhopal plant. He, being from an unrelated background, had no knowledge about the hazardous nature of the chemicals he was handling. As a part of the cost cutting measures, slowly, one by one, the safety precautions were neglected.

Even with respect to the original Virginia plant design of which the Bhopal plant was Indianized, a lot of automation was bypassed under the pretext of creating jobs, which left room for human error. Systems that were meant to automatically shut down operations were replaced by workers who could not even read the safety manuals which were in English.

Beyond the factory’s boundary wall

When land was first allotted to UCC for establishing the SEVIN plant, there were none of the slums or the shantytowns in the area. As time passed and city grew, the people moved to settle in the precincts of the factory. Disregarding UCIL management’s complaints, the local governments regularized those slums by giving out pattas (ownership rights) for the sake of votes, with promise of water and electricity connections. When opposition parties in the assembly questioned the safety of the people living in the slums, the relevant minister was complacent in his reassurance.

And on that ill-fated night

Water entered the tank E-610, which held 42 tons of MIC, produced the toxic gases which ended the lives of thousands of people.

Immediately after the accident, local government, Central Bureau of Investigation and Council of Scientific and Industrial Research, each set up their own teams to investigate the accident. Parallelly. UCC set up its own team to do the same. UCC, after research, came up with the theory where it believed that a rogue employee sabotaged the entire operation. The government rejected this theory but neither CSIR nor CBI could conclusively prove otherwise. The government’s theory of malfunctioning equipment resulting in leakage of water into the MIC tank couldn’t be replicated. The N.K. Singh Commission set up by the Madhya Pradesh government was shut down abruptly when the government suspected it implicated that the Madhya Pradesh Government, the Union Government and Union Carbide India Limited (UCIL) all shared the blame equally.

The most shameless aspect of this fiasco was the passage of The Bhopal Gas Leak Disaster Act, 1985, which conferred on the central government, which held nearly 25% equity in the UCIL, which micro-managed UCIL, the powers to sue UCC on behalf of the affected people. While UCC paid 750 crores to the victims in an out-of-court settlement, the government escaped all moral and financial responsibility.

Conclusions

Simply put, this was a government controlled explosion. The disaster was the direct result of government choking Businesses. To quote Robert Bidinotto who through his New York Times article in 1985 first brought to light the government’s direct hand in the tragedy,

Under (India’s) industrial policy, business and government are seen as “partners” in joint ventures to promote “national goals.” What does business bring to such a “partnership”? Basically, every creative element: vision, ideas. effort, know-how, capital. What does government bring to such a partnership? Basically, every coercive element: favors, dispensations. subsidies and other “carrots” for politically approved businesses, on the one hand — and on the other, prohibitions, regulations. punitive taxes and other “sticks” against politically unpopular businesses.

After the event, there was a lot of talk about Industrial Safety Standards. To paraphrase Thomas Sowell, the most basic question is not what the best safety standards should be, but who determines them. Should it be the government? The same government which kills hundreds of people every day on the roads that it designs so badly and maintains even worse? Millions of people buy an iPhone not because it is approved by the Bureau of Indian Standards (ISI mark) but because it is an Apple product. Apple has spent billions of dollars to make such a perfect product for profits only. Even if one specimen falls short of their standards, they have a reputation to lose. Is there a better incentive to maintain quality? In a control and command economy such as ours, governments, run by technologically illiterate bureaucrats and politicians, have no idea of what is safe. Yet they mandate and manage each and every aspect of the industry, makes decisions for the individuals while keeping people in dark.

In a free market scenario, a hazardous chemical manufacturing plant will have to convince the people living close to the plant to acquire land. The onus is on the factory to prove they are safe. Or when people want to move close to an existing plant, onus is on them to find out whether the plant is safe. This will create a market for a third-party service which specialises in safety standards to certify such plants. Thus, freemarket is nothing but dispensing responsibility down to the individual. Like any other governmental institution, such a certifying third-party too can be bribed, but they will soon be out of the business. On the other hand, if you bribe a politician, his accountability is only to the mob, whose votes he will buy with the same money. The vicious cycle continues. It is not profitable for a factory to be unsafe. Just like many Indian technical experts left the Bhopal plant in exasperation, an unsafe company will find it hard to retain employees. Lawsuits, compensations, etc. None of these are profitable. Whatever may be the reasons for this disaster, UCC’s brand value nosedived and the company doesn’t even exist anymore. Not being safe is an existential threat for the business in itself.

At its core, Indianization/protectionism is nothing but racism because it forces people to economically deal with each other based on their geographic origin. It denies its consumers best quality goods and spoils its producers by eliminating the best in the business. One need not forcibly transfer technology. It is profitable for foreign investors to employ local work force if they are capable of doing the job. Even if there is no capable work force, it is again in the interest of the foreign investors to build institutions to train local people, if you give them the freedom. Promoting Indian manufacturers by putting artificial restrictions on foreign players is but giving it an undeserved privilege. Only if people are allowed to collaborate and exchange ideas across borders, do we get best possible solutions. Else, one will eventually have to settle for a second rate good. In business, as in education, if you want excellence, privileges will not work. Only competition will.

Ideas when given life become events. They are not born in isolation. Far too often, we limit our vision to what we see and hear and don’t make any effort to trace back to the ideas behind the events. An abstract germ of an idea can lead man to land a robot on a comet or it can lead to a disaster.

Here is one such idea.

“I believe, as a practical proposition, that it is better to have a second rate thing made in our country, than a first rate thing that one has to import.” — Jawaharlal Nehru (From a speech in the 1950s)