Wall St. Bets on Gambling on the Web (NYTimes, 12/25/05)

December 25, 2005
Wall St. Bets on Gambling on the Web
By MATT RICHTEL
Internet casinos are outlaw operations in the eyes of the federal government, but they look like solid investments to many of Wall Street's largest firms.
Blue-chip investment houses like Goldman Sachs, Merrill Lynch and Fidelity now hold hundreds of millions of dollars in shares of online casinos and betting parlors, which are publicly traded on the London Stock Exchange and headquartered in places like Costa Rica or Gibraltar.
The growing participation by American investors underscores a striking gap between the federal law-enforcement position on online gambling and the realities behind what has emerged as a booming business.
It also highlights the difficulty of policing cross-border activity in the Internet age at the same time that electronic commerce and a global economy are creating fast economic partners across national boundaries.
Legal experts are divided over whether American investors and the investment houses that operate mutual funds could themselves be seen as criminally liable for their actions by providing financial backing for offshore casinos. To be sure, it is not uncommon for Americans to invest in overseas companies whose operations may be considered illegal or unacceptable here, from sweatshop manufacturers to European energy producers that do business in Iran.
The difference with Internet gambling is that the activity takes place on domestic shores - with Americans placing bets online using their home computers - and the Justice Department has stated clearly that the operators are violating American law.
Jaclyn Lesch, a spokeswoman for the Justice Department, said that the agency considered online gambling illegal but declined to "comment on the liability or hypothetical liability of a company or an individual."
But Internet gambling analysts and company executives said that the investments highlight how widely the federal policy is, in essence, being ignored.
Millions of Americans use the Internet to play games like poker, blackjack and roulette, or to place wagers on sporting events. Online casinos advertise in magazines and on cable television while filling big billboards in Times Square and other places where crowds congregate. Celebrities like Jesse Ventura, the former governor of Minnesota, hawk their wares.
Representative Bob Goodlatte, Republican of Virginia, an opponent of gambling, said that the federal government had essentially given up enforcing laws against offshore casinos. He noted, for example, that casino operators now travel freely within the United States, gathering at trade conventions even though, he said, prosecutors would be within their rights to arrest and bring charges against them.
He said that the involvement of investment firms could be part of a pattern of laws being flouted.
"It's very bad, and the Congress ought to investigate it," Mr. Goodlatte said, adding that it may turn out that the investment houses are knowingly supporting and promoting illegal enterprises.
For their part, the investment houses have taken the position that they indeed know there are legal risks involved in investing in offshore casinos, but that the risks are outweighed by the benefits of owning shares in growing, highly profitable businesses. Those shares can give a lift to mutual funds and other types of investments sold by the investment houses, meaning bigger returns for clients.
"Our analysis shows the gain from these stocks outweighs the very small risk" of owning them, said a spokesman for one major investment house. The spokesman would not agree to be identified by name or to have his firm identified, citing regulatory policy that could restrict the company's ability to buy and sell individual securities if he commented upon them.
The ownership rolls of offshore casinos read like a Who's Who of America's top investment firms. For example, public filings show that tens of millions of shares of SportingBet, a company listed on the London Stock Exchange that allows people to place bets on sporting events, are owned by Fidelity, Merrill Lynch and Goldman Sachs.
Fidelity Management holds shares worth about $363 million, or 14.1 percent of the outstanding shares. Those shares are largely held in mutual funds. Merrill Lynch Asset Management has $164 million in holdings, and Goldman Sachs Group Inc. has $137 million.
Similarly, Goldman Sachs and Morgan Stanley Securities hold big positions in BetOnSports, another publicly traded firm in London that facilitates sports betting, according to public filings. Morgan Stanley has one of the biggest stakes - worth around $25.6 million - but the company said that the position is held on behalf of one large investor, whose identity it withheld.
It is hard to discern how many of the shares are owned by mutual funds available to American investors. Many of the funds, including some that exclude American investors, are operated out of London.
For instance, Goldman Sachs's International Growth Opportunities Fund, which is open to American investors, owns around 175,000 shares of SportingBet, worth around $960,000, according to a recent public filing by the company.
Goldman Sachs also wrote in a report on Nov. 30 that over the next three months it "expects to receive or intends to seek compensation" for investment banking services provided to SportingBet and PartyGaming, two companies that operate gambling sites.
Goldman Sachs, Merrill Lynch and Fidelity all declined to comment.
George Hudson, a spokesman for SportingBet, said that there had been growing interest from the investment houses, and not just their European arms.
"It's not just London, it's New York," Mr. Hudson said, noting that the interest represents a change from two years ago when "the big banks wouldn't touch the industry with a barge pole."
According to Mr. Hudson and several other industry executives and analysts, a watershed event took place on June 30 when PartyGaming began trading on the London Stock Exchange. It was not the first Internet casino to go public in Britain, but it drew a great deal of attention because of the popularity of the company's sites. The ensuing demand for its shares put it among the exchange's top 100 companies in its market capitalization, currently around $9.6 billion.
At the time, I. Nelson Rose, a professor at Whittier Law School in Costa Mesa, Calif., who has written extensively on gambling law, was flown to London to advise a number of large investment houses - both American and European - on the risks involved in owning shares. Mr. Rose declined to specify the companies for which he consulted, but said that he had told them there was at least some risk of owning shares in the casinos.
Today, Mr. Rose said he believed there was only a 10 percent chance that the federal government would take action against the investment houses under the Wire Act, which covers online gambling, or federal statutes that permit the government to charge the partners of illegal operations with aiding and abetting their activities. But he said that if prosecutors did so, they could make a decent case.
The companies are shareowners "in an illegal enterprise," Mr. Rose said. "Therefore they are liable." Potential penalties could range from small fines to prison terms.
But Lawrence G. Walters, a Florida lawyer who specializes in investment law and who has consulted for some prospective American investors, said that the government would have difficulty finding a theory of liability given that the investors do not control the offshore casinos or direct their activities. They are "passive investors," Mr. Walters said.
"Nobody takes them seriously when they say this is a serious crime," he said of the government and anti-gambling laws. "But there is stuff still on the books, and somebody could go down heavily if government decides to turn its attention to them."
The bottom line, according to casino industry executives and some financial analysts, is that the opportunity for profit may be too good for the investment houses to pass up. Over all, Internet gambling is projected to reach almost $12 billion in business this year, up from $8.3 billion in 2004, according to Sebastian Sinclair, a gambling industry analyst with Christiansen Capital Advisors.
Individual companies are enjoying strong growth and big profit margins. Morgan Stanley on Dec. 1 published an analysis of SportingBet that noted that the company had acquired 700,000 new customers in a recent quarter, almost equal to the number of people it signed up all of last year. The Morgan Stanley report said that the company was taking in $530,000 a day just from its poker business.
"There is no other leisure business in the world with the same potential for growth and shareholder returns as online gaming," said David Carruthers, the chief executive of BetOnSports, noting that the major casinos each project 20 percent annual sales growth. "We're in our embryonic stages."
Mr. Carruthers said that the investments from American financial institutions have provided the stability and legitimacy needed to helped the casinos grow. "It says we're running a business legitimately and responsibly," he said, "and we're seen as a worldwide leisure product - similar to KFC, Ford, Coca-Cola, I.B.M. or any other global brand."

What's the Return on Education? (NYTimes 12/11/05)

December 11, 2005
Economic View
What's the Return on Education?
By ANNA BERNASEK
SOCRATES once said that the more he learned, the more he became convinced of his own ignorance. It's a familiar feeling for anyone who tries to make sense of the American education system.
This academic year, the better part of $1 trillion will be spent on education in the United States. That's an awful lot of spending, approaching 10 percent of the overall economy. But what exactly is the return on all of that money?
While the costs are fairly simple to calculate, the benefits of education are harder to sum up.
Much of what a nation wants from its schools has nothing to do with money. Consider the social and cultural benefits, for instance: making friends, learning social rules and norms and understanding civic roles.
But some of the most sought-after benefits from education are economic. Specialized knowledge and technical skills, for example, lead to higher incomes, greater productivity and generation of valuable ideas.
Those benefits are vital to a nation's growth. In recent years, Americans have become keenly aware of the impact of education as freshly educated workers from China and India compete for good jobs once held in the United States.
Today, many parents have a gut feeling that education is the way to ensure prosperity for their children, yet there is surprisingly little certainty about how much education contributes to the nation's overall wealth.
It is largely a problem of measurement. Economists have tried for decades to quantify the impact of education. They still don't have all the answers, but their work can shed some light on what Americans are getting for their investment. That information could serve as a backdrop for debates on how much government should spend on education and what should be left to individuals.
Start with what economists are confident about: the payoff to individuals. By measuring the relationship between the number of years of schooling and income earned in the job market, economists think that they have a good idea of what it's worth.
Alan B. Krueger, an economics professor at Princeton, says the evidence suggests that, up to a point, an additional year of schooling is likely to raise an individual's earnings about 10 percent.
For someone earning the national median household income of $42,000, an extra year of training could provide an additional $4,200 a year. Over the span of a career, that could easily add up to $30,000 or $40,000 of present value. If the year's education costs less than that, there is a net gain.
The payoff, of course, varies by individual. Another year of education will not have the same benefit for everyone. And school resources matter as well. According to studies by Professor Krueger and others, class size, teacher quality and school size can make a difference in the outcome. They have found that the effect of better schools is most pronounced for disadvantaged students.
There is less certainty about the big picture. That is partly because educational benefits accrue to the economy gradually, often showing up years after schooling is complete. Another problem is the difficulty of quantifying indirect benefits. One unknown, for example, is the degree to which formal education fosters new commercial ideas and technological breakthroughs.
While there is little doubt that there are benefits, those measurement challenges have led to big shifts in the conclusions of economic studies over time. In the early 1990's, economists calculated big economic rewards from additional investment in education. A decade later, the conclusions were different: studies suggested that while one individual might gain advantage over another through greater education, there might be no overall economic benefit.
Today, economists suspect that the truth is somewhere in the middle. Jonathan Temple, an economist at the University of Bristol in England, says the research trend is moving back toward the earlier findings. The latest attempts to quantify the impact of education on total economic growth have tended to conclude that it is at least as significant as that measured for individuals.
Because indirect benefits can't be counted accurately, Professor Temple suspects an even bigger impact. Insofar as education enhances worker productivity, there is a clear benefit to the economy.
Two Harvard economists, Lawrence F. Katz and Claudia Goldin, studied the effect of increases in educational attainment in the United States labor force from 1915 to 1999. They estimated that those gains directly resulted in at least 23 percent of the overall growth in productivity, or around 10 percent of growth in gross domestic product.
The most important factor was the move to universal high school education from 1910 to 1940. It expanded the education of the work force far more rapidly than at any other time in the nation's history, creating economic benefits that extended well into the remainder of the century, according to Professors Katz and Goldin. That moved the United States ahead of other countries in education and laid the foundation for the expansion of higher education.
Today, more Americans attend college than ever before, but the rest of the world is catching up. The once-large educational gap between the United States and other countries is closing - making it increasingly important to understand what education is really worth to a nation.
If economists are right, it is not just part of the cost of maintaining a functioning democracy, but a source of wealth creation for all. That means that investing in the education of every American is in everyone's self-interest.
Still, we're a long way from being able to judge the right level of spending on education - and how to achieve it. With a college degree more important than ever, the cost of higher education is rising steeply, creating growing stress for many American families. With more study, researchers may be able to identify ways of reducing costs while increasing the payoff from education.
Taking our cue from Socrates, the first step may be to recognize what we don't know.

Newly Bankrupt Raking In Piles of Credit Offers (NYTimes, 12/11/05)

December 11, 2005
Newly Bankrupt Raking In Piles of Credit Offers
By TIMOTHY EGAN
TACOMA, Wash., Dec. 9 - As one of more than two million Americans who rushed to a courthouse this year to file for bankruptcy before a tough new law took effect, Laura Fogle is glad for her chance at a fresh start. A nurse and single mother of two, she blames her use of credit cards after cancer surgery for falling into deep debt.
Ms. Fogle is broke, and may not seem to be the kind of person to whom banks would want to offer credit cards. But she said she had no sooner filed for bankruptcy, and sworn off plastic, than she was hit with a flurry of solicitations from major banks.
"Every day, I get at least two or three new credit card offers - Citibank, MasterCard, you name it - they want to give me a credit card, at pretty high interest rates," said Ms. Fogle, who is 41 and lives here. "I've got a stack of these things on my table. It's tempting, but I've sworn them off."
If it seems odd to Ms. Fogle that banks would want to lend money to the newly bankrupt, it is no mystery to the financial community, which charges some of the highest interest rates to these newly available customers.
Under the new law, which the banking industry spent more than $100 million lobbying for, they may be even more attractive because it makes it harder for them to escape new credit card debt and extends to eight years from six the time before which they could liquidate their debts through bankruptcy again.
"The theory is that people who have just declared bankruptcy are a good credit risk because their old debts are clean and now they won't be able to get a new discharge for eight years," said John D. Penn, president of the American Bankruptcy Institute, a nonprofit clearinghouse for information on the subject.
Credit card companies have long solicited bankrupt people, on a calculated risk that income from the higher interest rates and late fees paid by those who are trying to get their credit back will outweigh the losses from those who fail to make payments altogether. The companies also directed many of those customers toward so-called secured cards, which require a cash deposit.
But the new law makes for an even better gamble for lenders, consumer groups say. It not only makes bankrupt debtors wait eight years to clear their debts again, but it also requires many of those who do go back into bankruptcy to pay previous credit card bills that may have been excused under the old law.
Bankers defend the practice of soliciting the newly bankrupt, saying it gives them a chance to build a new credit history.
"The people coming out of bankruptcy need an opportunity to get back on their feet," said Laura Fisher, a spokeswoman for the American Bankers Association, the industry's largest trade group.
"If you take away the opportunity to get credit," Ms. Fisher said, "it's like taking away the want ads from a job-seeker."
But consumer groups say the new law has put millions of Americans at risk of being in a continuous debt loop through their credit cards. And while the banks have taken a short-term financial hit because of the new filings - leaving banks holding the bills - they will benefit in the long run because the new law makes it much easier to make money on people who live near the edge every month on their credit cards, some consumer groups say.
Credit cards are the most profitable part of the banking industry, with late fees and high interest charges helping make them so. Last year, more than five billion solicitations for new cards were sent out, nearly double the number from eight years ago.
"The whole business model of the credit card industry is built around outstanding debt," said Ellen Schloemer, a researcher at the Center for Responsible Lending, a nonprofit group that tracks lower-middle-class financial issues, based in Durham, N.C. "This is the only industry that calls people deadbeats when they pay all their bills every month."
Among bankers, policies differ in how to approach the newly bankrupt. Bank of America does not give credit cards to people who have filed for debt protection, said Betty Riess, a bank spokeswoman.
However, because there is a delay between a bankruptcy petition filing and a credit report showing the debt consolidation, the bank may still be sending offers to someone who has filed, Ms. Riess said.
Citigroup, whose credit card offers have piled up in Ms. Fogle's home, has its own internal credit rating system that does not always rule out the bankrupt.
"We use direct mail to find many of our new customers," said Samuel Wang, a Citigroup spokesman, in an e-mail message.
As of the end of October, 2,010,567 people had filed for bankruptcy protection this year, a modern record, federal bankruptcy court officials say. In just over two weeks of October, more than 600,000 people filed petitions, leading to long lines outside courthouses across the country, and clerks swamped with petitions.
The debtors were rushing to beat an Oct. 17 deadline when the most sweeping changes in bankruptcy law in a quarter-century took effect.
Most of the newly bankrupt filed under Chapter 7 of the code, which allows them to expunge many unsecured debts. The new law makes it much more difficult to erase debt; it increases the cost of filing and adds requirements like credit counseling.
The banking industry worked in Congress for nearly 10 years to pass the law, and critics say it gave them everything they wanted to increase profits from people prone to debt. Bankers say the law makes it harder for people to abuse the system.
"The hidden agenda of those who wrote the new law was death by a thousand cuts," said Travis B. Plunkett, legislative director of the Consumer Federation of America, which opposed the law.
Opponents, including a group of bankruptcy law professors, argued that the changes gave the banking industry too much of an advantage.
"In our view, the fundamental change over the last 10 years has been the way that credit is marketed to consumers," the bankruptcy professors wrote in a letter to the Senate this year.
"Credit card lenders have become more aggressive in marketing their products, and a large, profitable market has emerged in subprime lending. Increased risk is part of the business model."
Ms. Fogle would seem to be a perfect candidate for long-term debt to credit cards. Though she works regularly as a nurse at Good Samaritan Hospital here, earning $16 an hour, and has health insurance, she said a health emergency pushed her into debt. Last year, she needed surgery for uterine cancer, which caused her to lose days of work and income. Credit cards made up the difference, and soon she was $15,000 in debt.
She filed for protection of the courts in late August, and her debts are now removed. "My plan is to lay off credit cards until I can really afford them," she said. "But it's tempting. I would like to have one in case of emergency."
Ms. Fogle said she was trying to stick to a disciplined new pattern with her finances. "I try to buy only what I need, instead of what I want," she said. "But there are small things that I want - a latte, every now and then, taking my kids to the movies."
The credit card offers inform Ms. Fogle that she is pre-approved, but at higher interest rates - 23 percent or more, which is typical for offers to the newly bankrupt.
"It's obvious what they're trying to do here - start people off with a fresh credit card at a much higher rate than before," she said.
Nearly 60 percent of all credit card holders, about 85 million Americans, carry a balance - that is, they do not pay off the entire debt, according to the bankers' association.
The average debt among those with a monthly balance is $9,000, said the Consumer Federation of America in a recent report. Paying just the monthly minimum - usually 2 percent of the balance - on $9,000, it would take 42 years to pay off the debt, at a typical 18 percent interest rate, the consumer group calculated. Since that study, some banks have raised the minimum to 4 percent.
Opponents of the new bankruptcy law argue that it did not put new restrictions on credit solicitation and will turn the courts and the government into private collection agencies for bankers.
While bankruptcy filings increased 17 percent over the last eight years, credit card profits went up 163 percent to $30.2 billion, according to a report filed with the House Judiciary Committee by opponents of the new law.
"In the eight years since the credit industry first came to Congress seeking relief from the rising rate of personal bankruptcy filings, the extent of credit has not been curtailed, nor have the industry profits been diminished due to bankruptcy filings," Congressional opponents wrote in their report while the bill was under consideration.
Americans owe $800 billion in credit card debt, more than triple the amount from 1989, and a 31 percent increase from five years ago, according to a recent report, "The Plastic Safety Net," by the Center for Responsible Lending, and Demos, a research group based in New York.
The study found that a third of low- and middle-income American households used credit cards for basic expenses - rent, groceries and utilities - in any 4 of the last 12 months.
Those with the worst credit card debt were people ages 50 to 64, who owed $9,124 on average, the study found.
"The people I'm seeing right now, they're mostly middle or lower middle class," said Jack Burtch, a bankruptcy lawyer in Washington State. "In a good many of the cases, credit cards are what got them into trouble. And I don't see how credit cards will get them out of it."

All Roads Lead to Cities, Transforming India (NYTimes, 12/07/05)

December 7, 2005
India Accelerating
All Roads Lead to Cities, Transforming India
By AMY WALDMAN
SURAT, India - This western city has at least 300 slum pockets, grimy industry, factory-fouled air and a spiraling crime rate. A 1994 epidemic - reported as pneumonic plague - that originated here caused national panic. It is the kind of place where the body of a woman killed by a passing truck is left in the street because no one knows her.
The city hardly seems like a beacon, yet for young men across India it shines like one.
In his central Indian village, B. P. Pandey heard that Surat was a "big industrial town" and made his way here to work. Rinku Gupta, 18, one of Mr. Pandey's five roommates, came from the north. Hundreds of thousands more have traveled from Orissa, in the east, and from Maharashtra, to the south.
In the rural mind, Surat, in Gujarat state, looms with outsized allure, and its girth is growing to match. In less than 15 years, its population has more than doubled, to an estimated 3.5 million, making it India's ninth largest city. A majority of Surat's residents are migrants, drawn by its two main industries, diamonds and textiles.
Surat's growth spurt is being replicated across India. At least 28 percent of its population now lives in cities and many more of its citizens move in and out of them for temporary work. In some southern states, nearly half the population is in cities. In 1991, India had 23 cities with one million or more people. A decade later it had 35.
As the people shift, so does the very nature of India. This is a nation of 600,000 villages, each of them a unit that has ordered life for centuries, from the strata of caste to the cycles of harvest. In this century, cities' pull and influence - not only financial but also psychic - are remaking society. Less visible than the heated consumerism or western sexual habits changing India, this slow churning may be more profound and, for a country weaned on the virtues of village life, more wrenching.
"From all over India, they are coming," said Kailash Pandey, a milk seller, of the migrants pouring into Kanpur, one of the million-plus cities.
Kanpur, Surat and 17 of the other biggest cities sit along the so-called Golden Quadrilateral - 3,625 miles of national highways that circle the country and are being modernized in an epic infrastructure project. Earlier this year, a New York Times reporter and photographer drove that route, looping through India's megalopolises - New Delhi, Calcutta, Chennai, formerly Madras, and Mumbai.
The highway brings in and out almost everything cities need, including much of the cheap labor that men like B. P. Pandey supply. So with the road's improvement, Surat and other cities are surging anew, spreading toward the highway as if toward their life source.
The redone highway is also shrinking the distance between villages and cities. In the countryside through which the route passed, the buzz was about places like Surat, and the sense of a nation on the move.
"This is rural India - people don't stay," said Anil Kumar, a shopkeeper in the village of Kaushambi. "The highway has made it easier."
Compared with China, whose rural population is also moving, India's urbanization has been a saunter, not a sprint - slower, looser and more haphazard. That is partly because some of India's economic policies have served to constrict its cities' possibilities. Decisions made during and even after four decades of quasi socialism have crimped the kind of manufacturing that has spurred China's urban growth.
Good jobs or not, India's migrants still come. Their presence is creating new challenges: battles for land, competition for jobs, strained resources and religious and political tensions. So diverse is Surat's population that the municipal corporation now runs schools in eight languages.
And when the migrants return home, they bring new views and aspirations with them. Their perspectives are combining with the improved highways to open up, and out, the closed worlds of India's villages.
Waiting for a bus at the station in Jaipur, Surender Yadav offered his own village as an example. Bypassed by development, it sat down a wretched road off the highway between Jaipur and New Delhi. There was no medical dispensary, and perhaps more galling to Mr. Yadav, a 26-year-old doctoral candidate in Hindi, no newspaper delivery.
But the highway's widening and resurfacing meant villagers were no longer waiting for development to come to them. Every morning, Mr. Yadav said, 20 or so people rode their motorbikes to the highway, parked and hopped on a bus. They went to New Delhi, two and a half hours away, or Gurgaon, even closer, and worked as police officers, low-level clerks or customer care representatives in call centers. India, ever absorptive, had absorbed the highway, and turned out something new: the commuter village.
The village is becoming less a way of life than a place to live, a stop on the journey to the metropolis.
Brighter Prospects
During religious holidays, 200 to 300 buses a day pull out of Surat and head north for 10 hours on the national highway. Their destination: the rural region of Saurashtra. Their cargo: diamond cutters and polishers visiting the drought-parched villages they left to work in the city.
By the hundreds of thousands, the young men of Saurashtra have found good livings in Surat, even though most lack good educations. They earn about $2,400 a year - nearly five times the average per capita income - in diamond work, and sometimes significantly more.
Rajesh Kumar Raghavji Santoki, 28, had tried farming for a year at home, and given up in the face of a water shortage. After just three years in Surat, he was earning in a month more than the $500 his farmer father earned in a year. He owned a house, a motorcycle and a van.
India found its niche in the cutting and polishing of low-cost diamonds for the global middle class, and today more than 7 of 10 diamonds in the world are polished in Surat. It has created close to 500,000 jobs here alone.
That is nearly half as many jobs as India's entire information technology industry. Bangalore, the symbol of India's knowledge economy, may be a global buzzword, but the fate of India's rural poor depends more on industrial cities like Surat.
Together, the cities' dominance means that India will never return to a farming-based economy. The urban portion of the gross domestic product is roughly double the urban population, a fact not lost on Mr. Santoki or his boss, Savji Dholakia.
Nearly 30 years ago, Mr. Dholakia was an impoverished farmer's son, who at age 14 came by bus down the highway from Saurashtra to Surat.
Today, he runs a family-owned diamond business, Hari Krishna Exports, that did $103 million in exports last year. He speeds back to his home village on the revamped highway in a silver Mercedes E220. His example spurs more young men to follow him back.
In a fine white shirt and gold chain, Mr. Dholakia sat in his round white office, its sterile modishness far from his dusty youth, and analyzed his ascent. In today's India, he said, migrating from country to city was the only way. He was rich enough now to buy his entire village many times over.
"If you want to play international cricket, you need a proper playground; you cannot play in a field," he said, with six television screens to monitor his workers before him. "If you want to grow internationally, you have to leave your place."
Dreams to Chase
In the central Indian state of Madhya Pradesh, B. P. Pandey intuited as much, although his dreams were more prosaic than a multi-continental business empire. He came to Surat, he said, "to earn and enjoy."
Rough nubs, not polished facets, had brought him from the rural hinterland. Surat, once famed for its silks and brocades, has become a synthetic textile hub. The clacking of 600,000 hidden power looms fills its streets. Its factories texturize yarn, produce embroidery thread, weave saris and ship all of it along the highways to Punjab, Tamil Nadu and elsewhere.
Mr. Pandey had come to be a cog in this enterprise. Farming back home was dying, and his aspirations rising. He did not want to work in his home area, he said. He wanted what the city offered - energy, opportunity, the rewards of globalization.
Those rewards were not yet in reach. Mr. Pandey, 30, working in a yarn texturizing factory, earned only 2,100 rupees, or $46 a month. It was more than he could earn at home, but hardly enough to lift him from poverty. Yet he counted himself lucky to have a job.
India's relatively low exports and underdeveloped manufacturing sector - only 25 percent of its economy - meant the demand for factory jobs in the city far outstripped the supply. Many migrants eked out work as street vendors or day laborers.
The expanded highway was already giving Surat's textile industry a boost, cutting the time to move goods to ports, and to cities around the country. It had also cut the travel time to Mumbai, formerly Bombay: the 155 miles separating the two cities now could be driven in just over three hours, and Mumbaikars were coming to Surat to invest.
But fixing the roads would not be enough to make India competitive. Ports and airports also need work. Inflexible labor laws, excessive bureaucracy and indifference to quality by industries long sheltered from competition have undermined India's race for a larger piece of the global economy. Even Surat's two main industries were vulnerable to these handicaps, and China was hungrily eyeing them both.
Rigid and strike-happy labor unions, meanwhile, have cramped growth, and prompted industry to migrate toward cities without them. One result was that workers like Mr. Pandey had no union, and thus no benefits, no contract, no job security. He worked six and a half days a week, his only shift off stemming from a mandatory power cut, when he rested in his room. He lived in a barren tenement above the factory where he worked, in an overcrowded, underserviced industrial estate.
Mr. Pandey had come to enjoy, but the city had no real entertainment, and only 774 women for every 1,000 men. For many migrants, alcohol - brought down the highway like everything else here - filled the gaps.
Money and Motivation
If cities' conditions were grim, and the earnings meager, their fruits still tasted sweet in the village. To the rural poor in India's eastern and northern states, Surat and other cities to the south and west offered the best hope for a decent job.
The men in the state of Orissa, on India's eastern coast, had long ago concluded that literally crossing their country to work beat farming the fields next door. In Surat, they had cornered some of the more lucrative textile jobs, and shoehorned relatives and friends from Orissa into them as well.
The money-order economy they had created was reconfiguring life back home. Sushant Mohanti and two dozen other men from his village, which sat next to the highway in Orissa, regularly went to work in Surat's textile factories, about 870 miles away. He sent to his family at least one-third of the $150 or more he earned each month, as did the others.
For many rural families, having a member working in a city protected against vagaries of weather or crops. But it could also mean enough money for a substantially better life. Mr. Mohanti swept his hand grandly across the product of the migrants' labors: a row of solid, or "pukka," houses that had replaced the village's thatched huts.
But migrants were bringing home more than money.
Five hundred to 700 people from the village of Golantara in Orissa had gone to Surat to work, said Bibuti Jena, a former village head. They came back with new drive, haranguing less motivated peers who used caste barriers, unemployment or a lack of land to justify their inertia.
"I go out and work, why don't you?" the returnees said, and their words resonated.
"People are less lazy," Mr. Jena said of the village that spread behind him. "The work culture is changing."
So were desires. A bit north on the highway in Orissa, Nila Madhav, 21, stood on the median, next to fellow villagers selling watermelons to passing cars.
After four years of traveling to Bangalore to do embroidery work for $90 a month, he said, he could no longer see himself cultivating watermelon, or farming at all. It wasn't only the money: he had adapted to the city's ways, and south India's gentler climate, in the process rejecting the life of his parents.
"It's very hot here," he said of the spot his family had farmed for generations, "and I don't like to work in the heat."
Mr. Madhav had returned from the city with not only a new attitude, but also with a new language. His native language was Oriya, but he was holding forth on the median in Hindi. In cities like Bangalore and Surat, far from the Hindi-speaking north, Hindi had become the migrant lingua franca, the vernacular of a new pan-Indian culture.
Urban work was creating new identities. And in a country where caste has determined fates from birth, it also offered something subversive: freedom.
The Power of Labor
Given that they were sleeping at a highway crossroads in the city of Udaipur, 315 miles north of Surat, Shankar Lal Rawat and his fellow pavement dwellers did not look like liberated men. They had come from a village to the north, and were living day and night on their patch of cement, where they waited for contractors to hire them as porters or construction workers for less than $2 a day.
They were farmers, but the dynamics of their village had made farming unprofitable. As Adivasis, members of India's indigenous tribes, their status matched that of the lowest castes. The power in their village, much of the land, the money-lending monopoly and access to the water supply all belonged to a Rajput, or upper-caste, landlord named Jaswant Singh.
He paid just over a dollar a day for the men to labor in his fields. He charged prohibitive rates for the water they needed to work their own land, and for the loans they took to pay him for it. In their village, as in much of India, the caste system had conflated ritual status and economic power.
So they had chosen to travel down the new highway to the city and its thriving construction industry. The men's migration had deprived Jaswant Singh of his labor supply - a problem emerging for upper-caste landlords across India as lower castes leave - and asserted their financial independence.
Gandhi idealized villages as the way to return Indians to their precolonial state. B. K. Ambedkar, the Dalit, or untouchable, leader who helped write India's Constitution, saw it differently: he called villages a cesspool, "a den of ignorance, narrow-mindedness and communalism," and urged untouchables to flee them for urban anonymity.
In a modernizing India, Ambedkar's words are being heeded as never before for economic, not social reasons. Over time, the results may be the same.
Mr. Rawat, 30, and the other laborers living by the highway had traded rural poverty for urban, and left their families behind. The city's daily wages amounted to only slightly more than they would have earned tilling Jaswant Singh's fields. But in the choice of where to struggle, or whom to owe, was power - hardly a revolution, but a start.