Moving Up in Mumbai

Humble Jobs at the Mall Are Lifting
Legions of Indians Out of Poverty

By ERIC BELLMAN
November 17, 2007; Page A1

Mumbai, India

As an elevator operator in a dingy apartment building, Mohamed Shaikh used to ponder ways to get himself out of his mind-numbing job and his family out of the slums. Vishal Bhatade once worked 12 hours a day cutting cloth in a garment factory for less than $50 a month. Rakesh Gundeti used to worry his family wouldn't make it after his father was laid off and his mother developed cancer.

On a muggy Mumbai morning recently, the three young men left their cramped homes in slums around the city and headed to their work stations on the top floor of a mall housed in a former textile mill. There, in the men's denim section of a Pantaloon department store, they joined an economic drama sweeping across India.

For nine hours a day, six days a week, they folded jeans, stocked shelves and explained the different styles of pants to their middle-class customers. Their wage: roughly $1,600 a year, with the prospect of regular raises and promotions -- much more than any of their parents earned and double the annual average salary in India.

1

Eric Bellman

Mohamed Shaikh grew up in the slums in the shadow of the Phoenix Mills, the mall where he works today.

At Pantaloon, they were brushing up against a lifestyle they hope to be fully part of some day.

Equipped with new cellphones, the three men took to speaking to one other in English, a language they rarely used before. They also absorbed the latest Bollywood fashion trends, buying knock-off designer jeans from street markets rather than paying Pantaloon's prices of $20 to $70 a pair. On weekends after work, they would hang outside dance clubs, anxious to see the clubbers' outfits. "I will spend money like them someday," said Mr. Bhatade.

Such basic sales jobs, unremarkable and often derided in the West, are providing careers, confidence, and a shot at entering the consumer class to millions of impoverished young men and women across India. As their ranks swell, these children of slum dwellers, servants, sweepers and others low on the socioeconomic totem pole are forming a new stratum of workers. They are likely to play an important role in determining the future of the world's second-most-populous nation.

Until recently, much of the new wealth in India went to college-educated computer programmers, consultants and call-center workers. While they have made the country's technology industry a new pillar of global commerce, the total number employed by the software industry is still only about two million -- less than 0.2% of India's 1.1 billion population. At the other end of the spectrum, India still has more than 200 million people who live below the poverty line, mostly farmers.

Between the two are tens of millions of Indians, mostly city dwellers in their 20s and 30s, who are taking their first steps into the salaried class by selling goods and services to the increasingly free-spending upper crust. They represent a kind of swing vote in how far India can spread the fruits of its rapid expansion. Annual economic growth has averaged more than 8.5% for the past four years, but much of the benefits have accrued to the old industrial families and the tech-savvy few.

In the past, less-educated urbanites had few options beyond seeking a government job (often through family connections or bribes). They would go abroad or work for wealthy families who refer to them as "delivery boys," "tea boys" and "peons."

In contrast to China, where wealth spread as rural labor moved from farming to manufacturing, India's growth is being led by a sharp rise in domestic consumption. Stronger spending power is opening up opportunities concentrated in service sectors like retailing, banking and hospitality and telecommunications.

Firm data are hard to come by, but available statistics and anecdotal evidence suggest an explosion in service jobs. The unemployment rate for male high-school graduates in the cities, for example, fell from 8.5% in 1994 to 5.1% in 2005, according to government statistics. Over the next three years, says the Images Group, a research and consulting group in India, the retail sector will create more than 2.5 million new jobs in the country. India's Reliance Industries Ltd. says it will hire close to 500,000 people to staff its new chain of supermarkets. Pantaloon Retail Ltd., India's largest retailer with annual sales of around $1 billion, hires more than 500 people a month.

Rakesh Gundeti (right) helps a young customer as a colleague looks on.

"People are not despondent anymore," says N.S. Sastry, former director of the National Sample Survey Organization, the government office that tracks employment trends. "They see better employment opportunities, better earning capacities and opportunities to improve their skills."

In the brightly lit, white-walled Pantaloon jeans department, the seven-foot-high shelves are filled with denim from international brands like Lee and Pepe. It could be any middling U.S. department store, except for the Hindi pop-music videos playing on huge television screens and the photos of Bollywood stars promoting the brands.

Still, it was a completely foreign environment when the three young men first arrived several years ago. "They are absolutely raw when they come in," says Mansur Khan, the 32-year-old who trained all the department's employees after working for Pantaloon for seven years. He teaches new recruits about confidence, sales, fashion and even hygiene. "They come from an altogether different background."

Mr. Shaikh, a lanky 25-year-old with wiry hair, grew up in the slums nearby. His father died when he was ten, forcing his mother to work different jobs to raise her two sons. After sending them off to school in the morning, she made plastic buckets and cut thread for shirts in small neighborhood factories. She didn't always make enough to feed her children. The only open space for the boys to play was a nearby graveyard. They stumbled over tombstones during games of cricket.

Along with his mother and brother, Mr. Shaikh today shares a 100-square-foot home on a dark alley in a Muslim ghetto. It has a bed, a tiny kitchen and a pile of suitcases for the moves his family makes almost every year.

After high school, Mr. Shaikh had put aside his interest in college to find a job. "Once you start looking for money, you stop thinking about education."

He worked for a while in a small doctor's clinic, handing out prescriptions. The elevator operator's job, he recalls, was the worst. So four years ago, when Phoenix Mills opened -- part of a massive urban development project -- he applied at Pantaloon without even knowing what it was.

Mr. Gundeti's family is from the southern state of Andhra Pradesh. But he grew up in Mumbai, where his father worked in a textile factory until his job was eliminated. Almost all of the $10,000 severance he received went toward treating his wife's stomach cancer. The family also sold its slum home to help pay for the treatment. Still, Mrs. Gundeti died last August.

The elder Mr. Gundeti now sweeps floors at a nearby television studio. He had great hopes for Rakesh, whom he named after the first Indian in space, Rakesh Sharma, who was part of a Soviet mission in 1984. But he's turned cautious about what he expects from life. "Every time we have a little hope, something bad happens," the father said as he brushed aside ants on the floor of his small corrugated-steel home.

Rakesh, 22 years old and a big fan of American pro wrestling, had a friend who worked at Pantaloon. So he applied, too.

Mr. Bhatade grew up in a small town about 60 miles north of Mumbai. For the past 15 years, his father has manned a machine that makes brown paper bags. The family lives in a 150-square-foot hut built against the wall of the factory. When Mr. Bhatade was a boy, he planted marigolds and a pomegranate tree outside their door and adopted neighborhood street cats to make the modest abode feel like a home. His parents insisted on a basic education.

"We didn't want them to suffer like we did," says his mother, Vanita Bhatade, 46 years old.

His first job after high school was at a garment factory, where he worked for more than a year. Mr. Bhatade's father told him to look for work in Mumbai, so he moved in with his uncle in a city slum. After a stint peddling credit cards door to door, a friend tipped him off that Pantaloon was hiring. He went for an interview in May of 2004 and got the job.

Immediately, Mr. Bhatade found the clientele to be a big challenge. It was the first time any of the young men had talked to people much richer than themselves. "When I came, I was very shy," Mr. Bhatade recalls. "I would watch them from afar. I couldn't even ask them what they were looking for."

The young men were often yelled at or accused of falling down on the job, as skeptical customers refused to believe their size was out of stock or got irate if the clothes they wanted didn't fit.

They'd shout, "'Who is handling this section?'" Mr. Bhatade recalls. "Who is the boss? Who is the store manager? Who is the department manager?" Mr. Bhatade would offer a simple "I am sorry."

As the longest-serving Pantaloon employee of the three, Mr. Shaikh became the unofficial assistant manager of the department, often staying late into the night to make sure his shelves and racks looked clean. "I never used to fold my clothes at home," he said with a grin.

For jeans advice, he turned to Mr. Bhatade, the department's resident expert on more than 50 types of jeans and denim. He can describe the difference between "monkey wash" and "tiger wash" to his English-speaking customers. (In monkey wash, the front of the pants is faded. In tiger wash, the fading is in horizontal stripes.)

Martin von Krogh/WpN

Rakesh Gundeti, 23, rear, lives with his stepmother, in yellow, and his father. The house gets crowded when his sister and her husband, center, are visiting.

And for light relief to break up the day, they'd pick on Mr. Gundeti, the department comic, making fun of his "funny" southern Indian accent. When he'd return late from a tea break or ask to go home early, his colleagues insisted that he must have had a date. The razzing often sent Mr. Gundeti into a faux fit of anger, making everyone laugh.

When not with customers, the three men would chat constantly about sales targets, cricket, family and movies. The managers discouraged them from bunching together on the floor, so they tried to stay at least five feet from each other as they folded pair after pair of jeans. One recent afternoon, Mr. Bhatade and Mr. Shaikh debated how their section compared to others in the store.

Formal men's wear has the highest sales every month, so employees there have a greater shot at sales-based bonuses. But denim is better than working in the women's wear departments, they agreed, because female customers are much more demanding. "They will try on each color in their size and still they are never happy," said Mr. Shaikh, laughing. "Is your girlfriend like that?" he asked Mr. Bhatade. Blushing, Mr. Bhatade walked away.

Their outside interests and social lives increasingly tilted toward Pantaloon and away from the slums. "I try to teach my friends to end their vulgar language and behavior," said Mr. Gundeti of his neighborhood friends. "They don't change, so I don't spend time with some of them anymore."

Instead, the men watch movies together or with other acquaintances from Pantaloon. Restaurant dinners are still beyond their reach, but on birthdays they pitch in for a cake and take it to the beach to eat. On a company team-building outing, they slid down water slides at a resort near Mumbai. It was the first time Mr. Bhatade had been in a swimming pool. "Most of my free time I spend with my Pantaloon friends," he said.

The store doubled as a place of worship. For a few weeks in September, a room near the denim department housed a statue of the elephant-headed Hindu god Ganesha that was decorated with streamers and flowers and lit with a purple spotlight. Mr. Gundeti went daily to give offerings and sing religious songs. Mr. Bhatade and 30 other Pantaloon employees later carried the idol to the ocean and left it in the Arabian Sea, the traditional end to the Ganesha festival.

During Ramadan, the Muslim holy month, Mr. Shaikh and his supervisor, Mr. Khan, joined the store's other Muslim employees on the roof of the store to break their fast at dusk rather than going to nearby mosques. Each night, they kneeled among piles of boxes full of clothes to pray and passed dates and slices of watermelon as the sun set over the new mall being built next door.

While Pantaloon isn't a quick route out of the slums, the jobs, and the pay, offered something else: the occasional luxury, some financial reassurance and a large dose of self-esteem.

Mr. Shaikh used to wear irregular pieces from the factory where his mother worked -- shirts where the pockets didn't match, for example. His store job allowed him to purchase his first "branded" pair of jeans, on sale for $20. In September, he bought a computer, picking one that can also be used as a television so his mother can watch soap operas. Some regular customers started asking him for his fashion advice. "People are going for the comfort fit, not the boot cut," he said.

Mr. Gundeti has supported his father with his Pantaloon salary and taken advantage of its afternoon shifts to study computer programming in the mornings. He just bought a laptop. It cost more than a desk top but his home has no desk. His family has noticed that he isn't as hot-tempered as he used to be and that he is more "gentlemanly." His Hindi is now peppered with English phrases like "you know," and "I mean." Over the next six years, he hopes to boost his salary significantly -- enough to buy an apartment for his father.

Mr. Bhatade, too, has matured since he started working at the store, according to his parents and sisters. While he used to be shy and withdrawn, he recently planned his sister's wedding -- a huge undertaking in even the poorest Indian homes. He says he is embarrassed by the clothes he used to wear and today tries to teach his friends and his sisters about Mumbai style. Meanwhile, he has become one of the most eligible bachelors in his community, says his father, who has turned down more than five offers of arranged marriage for his son already.

Over the past month, each team member has taken new steps up in the direction of the consumer class. Mr. Gundeti earned a promotion to cashier in Pantaloon's jeans department. Mr. Shaikh left his job to start his own small business, recruiting people to work on construction projects across the Middle East.

Mr. Bhatade was promoted to "team leader," which means he will manage a group similar to his old gang in the denim department, but on a different floor. It is now his turn to teach the job to a new batch of hires from the slums.

http://online.wsj.com/article_print/SB119524399469296009.html

 

Citgo Scales Back in U.S. To Fund Chávez's Goals

This is a very sad state of affairs at Citgo. Because of the need to feed the ass(chavez), Citgo, an extremely well run oil refiner in the US is now being turned into another of chavez's social morasses. F%$&.

 

In 1997, one of every 10 gallons of gasoline U.S. drivers bought came from a Venezuelan-owned refiner, Citgo Petroleum Corp. That year, a student at Oxford University wrote a thesis saying Citgo was cheating Venezuela's people by investing too much in the U.S., and should send more cash home.

The student, Juan Carlos Boué, drew scant attention until four years ago, when Venezuela's populist president, Hugo Chávez, took control of the state oil apparatus. Today, Mr. Boué is an influential member of Citgo's board. And Citgo, which Venezuela bought two decades ago to market its hard-to-refine heavy oil, now has a different focus: feeding cash to Mr. Chávez's program to build socialism in Venezuela.

Juan Carlos Boué

In recent years, while other U.S. refiners have invested heavily to take advantage of historically wide profit margins in the business, Citgo has been slimming down. It has slashed its investment and sold off U.S. assets, most recently by agreeing last week to shed a unit that turns crude oil into asphalt. In keeping with Mr. Boué's nostrums, Citgo has sent the extra money to its sole shareholder, the Venezuelan government. Citgo has raised its annual dividend to more than $2 billion, from $225 million in 2000.

The changes at Citgo are altering the U.S. fuel landscape. Citgo owns 5% of U.S. refining capacity, a significant chunk at a time when U.S. demand for fuel is growing faster than domestic production, and no new refinery has been built in three decades. Citgo's production will stagnate, adding to pressure on pump prices and fuel imports.

Citgo's U-turn mimics changes at its corporate parent, Petróleos de Venezuela SA, known as PDVSA. Mr. Chávez has staffed the national oil company with political allies and spends some $14 billion a year of its profits on social programs. Shorn of investment, PDVSA has seen its oil output plunge.

The strategy also contrasts with those of some other national oil companies, such as Saudi Arabia's and Brazil's, which invest heavily in both production and refining.

Citgo declined to reply to questions about its strategy. Neither PDVSA nor Venezuela's Ministry of Energy and Mines responded to requests for comment. Mr. Boué, who is 41 years old, said in an email that "an objective is certainly to maximize dividends, but never at the expense of the integrity of the operations." Speaking of Venezuela's ownership of Citgo, he said, "During 20 years we put in huge amounts of money without receiving anything in return."

In the past, Citgo has said selling assets allows it to focus on its most profitable ventures. Industry experts say Citgo is a moneymaker. Citgo has not disclosed financial data since 2005, when publicly traded bonds were paid off, ending the need to report to the Securities and Exchange Commission. Citgo's last public filing showed profit of $419 million on revenue of just under $31 billion in the first nine months of 2005.

The downsizing is part of broader changes at Citgo. After first investing in Citgo 21 years ago, Venezuela for years let Americans run it. But under the Chávez regime, Citgo has had four Venezuelan CEOs in six years, one a former general from the army, where Mr. Chávez began his career. Gracing Citgo's Houston offices today is a large statue of an oil worker, a woman and a machete-wielding peasant, a symbol of the Chávez revolution. Citgo has a new board that includes, besides Mr. Boué, a cousin of Mr. Chávez and a French-born Marxist mathematician.

This board has become the key policy-making body, keeping U.S. managers in the dark about long-term strategy, say some current and former employees.

When Venezuela relocated Citgo's headquarters to Houston from Tulsa, Okla., in 2004, nearly half of the employees chose not to move. Almost all high-ranking American executives have since left. When they go, they must sign agreements promising not to criticize Citgo in public, former executives say, in accord with what some describe as a growing culture of secrecy at the company. "It's like a police state," said one, a Venezuelan.

Taking its cue from PDVSA, Citgo has increased its social spending. Last winter, Citgo provided cut-rate heating oil to 1.2 million low-income Americans. The program enabled Mr. Chávez to score political points about continuing poverty in one of the world's richest countries.

The fiery Venezuelan's political grandstanding has been a headache for some who run franchised Citgo gas stations. After he labeled President Bush "the devil" in a speech at the United Nations last year, an Internet-led movement arose to boycott Citgo stations. In rural Alabama, a billboard put up in recent weeks picturing Mr. Chávez read: "Don't buy gas from this Ass." It's hard to tell how much effect the movement has had, but in Monroe, La., Bennie Evans, owner of 120 Citgo stations, is switching many to other brands. "Customers were not coming back. We got tons of hate emails," he says.

Citgo's relationship with Venezuela began in the mid-1980s, when the country was finding its heavy grade of crude a tough sell because many refineries couldn't process it and lighter oil was plentiful. The state oil company, PDVSA, decided the oil would be an easier sell if first turned into products like gasoline. It went looking for a refiner and found Citgo, then a one-plant company owned by the operator of 7-Eleven stores, Southland Corp. PDVSA bought half of Citgo in 1986 and the rest four years later.

PDVSA agreed to supply Citgo with crude. The contract based the price Citgo paid not on spot-market prices, as many such deals do, but on the prices of refined products. Former executives say this was to ensure a profit for Citgo, which was going to have to make extensive refinery upgrades.

At first, the deal brought Venezuela a higher price for its oil than it could have gotten on the spot market, and Venezuela left Citgo alone. "We were very careful to keep the fewest number of Venezuelans there because it was a U.S. company," says Luis Giusti, president of PDVSA in the 1990s. Besides investing in its plant, in Lake Charles, La., Citgo acquired five more U.S. refineries. It expanded its fleet of franchised Citgo-branded gasoline stations to 13,000.

Reinvesting profits in the U.S. made sense for tax reasons, according to former executives. They say sending the profits to Venezuela would have resulted in double taxation, because the U.S. and Venezuela didn't have a treaty to offset each other's taxes. Mr. Boué says they could have avoided the tax hit by sending the profits via a PDVSA subsidiary in the Netherlands, which did have a tax treaty with America, and then on through to Venezuela by way of Curacao.

The economics shifted in the mid-1990s. The price of refined products dropped, with the result that PDVSA started getting less for its crude oil by marketing it through Citgo than it could have on the spot market. From 1993 to 2003, PDVSA got about 50 cents to $4 below the spot-market price from Citgo under the supply arrangement with three of its refineries, according to company documents reviewed by The Wall Street Journal. The documents indicate that the discounts amounted to $2.55 billion over most of those supply contracts' life.

In Venezuela, where the popular mood was sour after a series of economic crises, a perception grew that Citgo was a bad deal. Even before Mr. Chávez's election in 1998, it had become harder for Citgo to get approval for new projects. In his campaign, Mr. Chávez suggested that Venezuelan oil men were using Citgo to hide money from the country. His views fed into a debate that had raged for years between the oil establishment and the country's left wing, which said PDVSA should focus its investments at home.

Mr. Boué, as a student in his home country of Mexico, had weighed in on this in a thesis that was published in 1995, while he was working at Mexican state company Petróleos Mexicanos. He argued that Venezuela didn't need foreign refineries and should simply sell its oil on global markets. Two years later, Mr. Boué elaborated in a dissertation he wrote for his Ph.D. at Oxford. He said any oil producer that wants to guarantee the sale of a certain amount of crude can simply offer it at a slightly lower price than others.

"Acquiring and managing refineries is ... a very expensive enterprise," Mr. Boué wrote. "Selling crude by means of discounts is both simple and cheap."

He pitched his ideas to PDVSA but was ignored. Former officials there say Mr. Boué hadn't taken into account how trying to sell a large amount of heavy crude on the spot market would affect the price -- namely, by driving it lower. "Boué's arguments were simply wrong," contends Ramón Espinasa, a former PDVSA chief economist.

Mr. Boué, citing his own experience at Pemex, says it's untrue that PDVSA would have depressed the market by placing its heavy oil in the market, adding that he never advocated selling it on the spot market but instead by contract.

Former PDVSA officials also say that in criticizing Venezuela's ownership of a U.S. refining operation, Mr. Boué didn't take into account its value as an investment. PDVSA bought Citgo for $951 million. A former Citgo executive says its value is now about $14 billion. Mr. Boué's reply to that is that PDVSA paid much more than $951 million for Citgo if one takes into account the oil-price discounts, the interest PDVSA could have earned on money lost through the discounts, and investments made in Citgo.

Mr. Chávez, as Venezuela's president, initially had difficulty changing Citgo. His envoys to the company usually ended up supporting it. For instance, in 2003 the Venezuelan oil ministry sent an executive named Luis Marín to run Citgo, urging him to sell it. But Mr. Marín saw that the refining business was improving and urged that Citgo be expanded instead.

Mr. Boué, meanwhile, had joined a think tank called the Oxford Institute for Energy Studies. There he met Bernard Mommer, a French-born Marxist academician who was part of the Chávez political entourage. Thanks to Mr. Mommer, Mr. Boué's ideas finally caught the eye of Venezuela's energy minister, Rafael Ramírez, and Mr. Ramírez hired him to do a study of Citgo.

Mr. Boué's conclusions, published in 2004, echoed what he'd been saying all along about Citgo not sending home enough of its profits. Early the following year, Mr. Chávez fired Mr. Marín, the Citgo chief who wanted to expand the company, and replaced its entire five-member board, putting Messrs. Boué and Mommer on it.

The new board changed things quickly. U.S. executives of Citgo had always participated in board meetings. Now they make brief presentations and must leave, former executives say.

The former executives contend the goal of maximizing payments to Venezuela is so strong that many worthwhile investments are scrapped. In 2005, U.S. executives wanted to invest in a project involving cogeneration, a process that produces heat and power at once, and claimed the project would produce a 60% return on investment. The board rejected it.

Mr. Boué said many of the arguments to support the project were "very feeble," and "the executives could not convince the board." He added, "I'm only a director at Citgo, and certainly not an eminence grise pulling the strings backstage."

Citgo has delayed refinery upgrades required by the U.S. government to produce cleaner fuels. Some analysts say this raises a risk of Citgo's not being able to finish in time, because projects are becoming more expensive and materials and labor harder to come by.

Citgo has sold interests in pipelines and terminals, and last year got rid of its share of a refinery co-owned with another refiner. Now it is selling its asphalt business, for $550 million.

Citgo had started that operation in 1991 to refine super-heavy grades of Venezuelan oil into material to coat U.S. roads and rooftops. Citgo Asphalt Refining Co. became the largest asphalt supplier on the East Coast, and Citgo set plans to expand it further. After Mr. Boué arrived at the Citgo board, the plans were scrapped, former executives say. Now, instead of making asphalt out of a sludgy crude called boscan, Venezuela mixes the sludgy material with light crude and sells it to China, a former executive says.

The strategy has faltered. Shipping crude to China is costly, and using valuable light oil to thin out boscan results in a mixed crude that doesn't fetch high prices. Boscan inventories are piling up. Mr. Boué says the accumulation is seasonal and isn't related to the decision not to expand the asphalt refiner.

By largely avoiding U.S. investment, Citgo didn't fully exploit a refining boom of which other companies took full advantage. Citgo's capacity barely grew, and then declined 12% with last year's sale of a co-owned refinery. Citgo found itself having to buy gasoline on the open market to supply some gas stations. So last year it shed about 1,800 of the franchised stations. They now total about 8,000, down about 50% from their 1990s peak.

Citgo's strategy is in sharp contrast to that of, for instance, the big refiner Valero Energy Corp. Valero expanded its capacity twentyfold during the past few years' boom, acquiring numerous additional refineries. Says one former high executive at Citgo: "The sad thing is, we had a chance to become the Valero of the refining industry, and we missed it."

http://online.wsj.com/article/SB119517439619295075.html

Property titling brings - capital, growth'

New Delhi: Economist Hernando De Soto has faced death threats and survived assassination attempts from extremist organizations that opposed his movement to offer government guaranteed title over property in Peru. He estimates that the think tank he founded, the Institute of Liberty and Democracy, has received more than 500kg of explosives over time. Eventually, De Soto prevailed in one of the most radical makeovers of a society that brought an informal economy and thereby bulk of the populace within the regulatory fold through the ingenious effort of providing land titles. Ever since, he has been consulting several governments world over to productionize this philosophy and ensure that the growth process becomes more inclusive.

In the capital recently on a personal visit, De Soto spoke to Mint on the subject as well as the challenges and the need for a resolute political will to implement guaranteed land titles. Edited excerpts:

 

http://www.livemint.com/2007/11/01223015/Property-titling-8216brings.html

How Lawmaker Rebuilt Hometown on Earmarks

JOHNSTOWN, Pa. -- If John Murtha were a businessman, he'd be the biggest employer in this town.

The powerful U.S. congressman has used his clout on Capitol Hill to create thousands of jobs and steer billions of dollars in federal spending to help his hometown in western Pennsylvania recover from devastating floods and the flight of its steelmakers.

More is on the way. In the massive 2008 military-spending bill now before Congress -- which could go to a House-Senate conference as soon as Thursday -- Mr. Murtha has steered more taxpayer funds to his congressional district than any other member. The Democratic lawmaker is chairman of the House Appropriations Subcommittee on Defense, which will oversee more than $459 billion in military spending this year.

Johnstown's good fortune has come at the expense of taxpayers everywhere else. Defense contractors have found that if they open an office here and hire the right lobbyist, they can get lucrative, no-bid contracts. Over the past decade, Concurrent Technologies Corp., a defense-research firm that employs 800 here, got hundreds of millions of dollars thanks to Rep. Murtha despite poor reviews by Pentagon auditors. The National Drug Intelligence Center, with 300 workers, got $509 million, though the White House has tried for years to shut it down as wasteful and unnecessary. Another beneficiary: MTS Technologies, run by a man who got his start some 40 years ago shining shoes at Mr. Murtha's Johnstown Minute Car Wash.

A review by The Wall Street Journal of dozens of such contracts funded by Mr. Murtha's committee shows that many weren't sought by the military or federal agencies they were intended to benefit. Some were inefficient or mismanaged, according to interviews, public records and previously unpublished Pentagon audits. One Murtha-backed firm, ProLogic Inc., is under federal investigation for allegedly diverting public funds to develop commercial software, people close to the case say. The company denies wrongdoing and is in line to get millions of dollars more in the pending defense bill.

Mr. Murtha, a gruff, combat-decorated former Marine, was thrust into the national spotlight last year by his opposition to the Iraq war. Yet he has long been known in Washington, where he wields power like an old-fashioned political boss and has become a lightning rod for Republican attacks. With years of strong support for the military, he's also been an important voice for Democrats in battles over war funding and troop withdrawal.

But for his 33 years in Congress, his overriding focus has been the revival of his hard-luck hometown. In addition to using taxpayer money to build a local defense industry, Mr. Murtha has funded by legislative fiat miles of new roads, water projects, medical facilities and federal offices for his district. He even brought a Marine attack-helicopter squadron here; it's next to the John Murtha Johnstown-Cambria County Airport. Mr. Murtha has steered at least $600 million in earmarks to his district in the past four years, according to Taxpayers for Common Sense, a nonpartisan Washington group. The nonprofit group estimates he's sent $2 billion or more to the district since joining the appropriations committee.

Since Democrats took control of Congress this year, they've reversed the huge growth under Republican rule of earmarks -- narrow, special-interest items that are added to the budget with little public scrutiny, sidestepping the usual competitive-bidding process. In the House, the value of earmarks in all pending budget bills is an estimated $5.6 billion, down by about half from last year, according to Taxpayers for Common Sense. Horse-trading in the House-Senate conference later this week could change the earmark totals.

Mr. Murtha, too, cut his overall earmarks in the House defense-spending bill, a spokesman says. His earmarks in the current bill are $166.5 million, more than any other House member, Taxpayers for Common Sense says. Mr. Murtha's spokesman did not dispute this year's total, but said without providing details that it is down by half from last year. Prior to this year, earmarks couldn't precisely be counted because Congress didn't release comprehensive figures.

'Not Going to Apologize'

Mr. Murtha defends Congress's right to award such funds. Despite lobbying and earmark scandals of recent years, he argues that local lawmakers are best suited to understand the needs of their district. He says he's backed new research into treating diabetes and breast cancer, largely funded with defense earmarks and steered to Pennsylvania hospitals and institutions.

He's particularly proud of the military contractors that have flocked to his district. "They do their work on time and at a competitive price," he said in an interview, saying earmarks have helped spur economic development. "I'm not going to apologize for that."

Mr. Murtha underscored this point at a breakfast fund-raiser held for him this summer. "This is about jobs," he told hundreds of military contractors and lobbyists at the Johnstown Convention Center downtown. Sponsored this year by defense giant General Dynamics Corp., the event drew more than 800 people, who paid $25 a head for scrambled eggs and a chance to meet the powerful lawmaker. Working the crowd, he tells a visitor that bringing federal dollars here "is the whole goddamn reason I went to Washington."

Across the street, an Army tank and armored vehicles bristling with guns and satellite dishes were on display, part of a two-day trade show sponsored by the chamber of commerce. It's held each year in War Memorial Arena, an old hockey rink that is home to the minor-league Johnstown Chiefs and the set for the 1977 Paul Newman film "Slap Shot." Inside, military contractors, many of them recipients of Murtha-backed earmarks, show off wares ranging from fighter-jet ejector seats to military mapping software.

In Washington, Mr. Murtha -- Jack, as he's widely known -- is used to getting his way. At 6-feet-6 and 75 years old, he has been known to physically intimidate opponents and fly into a red-faced rage when crossed. (One recent tirade, against a Republican who had tried to cut funding for a Johnstown earmark, found its way onto YouTube.) He curses like the Parris Island drill sergeant he once was, punctuating conversations by punching a finger into the chest of foes and friends alike.

Fencing the West

Much of this money will dry up when Mr. Murtha leaves office, an event local officials fear as much as the next flood. Johnstown, a city of 27,000, sits at the confluence of the Stony Creek and Conemaugh rivers, 60 miles east of Pittsburgh. For a time, it was the world's largest steel producer and made much of the barbed wire that fenced the West. The rivers that fueled its steel and coal industries also were a mortal danger. A dam burst in 1889, destroying the city, and floods again wreaked havoc in 1936 and 1977. Steel mills, most of them unused, still line the river's banks.

By 1983, Johnstown's unemployment rate was more than 24%. Today it is around 5%. New campuslike brick office and research buildings stand just outside of town, with assembly plants up the hill by the airport.

Mr. Murtha isn't likely to leave office soon. He was re-elected in 2006 with 69% of the vote; in 2002, he won with 74%. Local Republicans didn't field a candidate to run against him in 2004. Part of his support, no doubt, is self-interest: Voters know that no freshman challenger can match Mr. Murtha's ability to bring home bacon.

A move into Mr. Murtha's district has become a profitable business model for military contractors. Some are subcontractors for established defense firms; others are home-grown, closely held firms.

Such companies work a well-worn back-channel into the U.S. Treasury. Their executives give generously to members of the congressional appropriations committees, and hire lobbyists who often are former staffers or friends of lawmakers. In turn, the companies seek earmarks inserted into the U.S. budget. The company's name typically isn't listed: Funds are sent instead to a federal agency, such as the Army or the Justice Department, which is then directed to award the contract to the company. (Nonprofit firms can be awarded earmarks directly; one of the largest defense companies in Mr. Murtha's district, Concurrent Technologies, claims nonprofit status.)

No Pentagon Support

One beneficiary is New Jersey-based DRS Technologies Inc., a multibillion-dollar maker of military electronics. The company entered Mr. Murtha's district a decade ago when it bought a small cable assembler. Since then, the congressman has helped fund nearly $400 million in contracts for the local DRS unit, building data-display terminals installed in Navy destroyers and submarines.

The Pentagon didn't ask for many of these contracts in its annual budget requests. Mr. Murtha assured the work would be done in his district by earmarking part of the program to DRS.

Paired with prime contractor Lockheed Martin Corp., the DRS unit helped build more than 4,000 display terminals in the past decade, some costing as much as $240,000 each. A former Murtha staffer, Paul Magliocchetti, helped get the funding through Mr. Murtha's committee. He was paid $3.2 million by DRS over the period for his lobbying efforts, federal records show. Since 1989, Mr. Magliocchetti and executives of Lockheed and DRS have given more than $377,000 to Murtha campaign committees.

Mr. Magliocchetti, who has built a lobbying business winning Murtha earmarks for dozens of companies, won't discuss his work. "No comment," he says. "I'm just a former staffer." A spokesman for DRS, Richard Goldberg, also wouldn't comment on Mr. Murtha. "We have a world-class manufacturing facility in Johnstown, and a skilled, reliable work force," he said. A Murtha spokesman says the program has saved money for the Navy by using commercial, off-the-shelf components.

Military officers and agency officials sometimes gripe about congressional orders to spend money on projects they didn't ask for. But the Pentagon tends to go along with Congress to facilitate earmarks, keeping lawmakers happy and ensuring political support for other military programs. T. Michael Mosely, the Air Force chief of staff and a featured guest at this summer's Murtha breakfast, shrugs off the issue. Congressional earmarks for local projects have been in the military budget "for at least 200 years," he says.

White Papers

Concurrent Technologies has been a centerpiece of Mr. Murtha's efforts to build a defense industry in Johnstown. It has gotten at least $228 million in new earmarks over the past four years, according to a database of defense earmarks created by Taxpayers for Common Sense. Most are in the military-research budget and often fund vaguely worded research, producing white papers or demonstration projects whose worth is hard to quantify.

In budget bills now before Congress, Concurrent stands to gain funding under at least a half-dozen programs. In the House defense-spending bill, it would get $3 million for "Integrated Mission Critical ESOH Technology and Regional Sustainability," $2 million for "Advanced Combatant Materials Research" and another $2 million for "Strategic Logistics Initiatives -- Asset Viability."

Multiyear contracts already awarded to Concurrent yield millions more each year. In June 2003, Concurrent landed a five-year, $350 million contract from the National Defense Center for Environmental Excellence, which was created by Congress with Mr. Murtha's backing. Its stated mission is to demonstrate and put into use antipollution technologies for military bases and contractors, such as new ways of stripping paint from warships.

But the program wasn't very effective, and there's no way to measure its results, Pentagon auditors determined. A 2001 report found that out of 63 new antipollution technologies, 20 had been tried at a military site and one was successfully in use at more than one installation.

Concurrent also received millions of dollars through another Murtha-funded military program, the Electronic Commerce Resource Centers. Created by Congress in 1991, the program became a conduit for contracts to politically connected companies, congressional records show. The nonprofit company was intended to help small and midsize contractors use emerging Internet and electronic-commerce technology to do business with the armed services, which were increasingly requiring contractors to communicate online. In its earliest review, in 1997, the Pentagon called the program "not efficient or cost-effective," saying it overlapped services, such as providing Internet connections, that were available elsewhere.

With Mr. Murtha's prodding, Congress continued funding and also shifted more control of the program from the armed services to the contractors themselves. Concurrent used this autonomy to set up centers around the country, employing hundreds of people in a half-dozen locations from Bremerton, Wash., to Largo, Fla. That first Pentagon audit "found none of these initiatives to be of significant value."

Air Force Is Rebuffed

The Pentagon's audit, which was previously unreported, describes surprising tension at the time between the Air Force and Concurrent. The Air Force at one point tried to rewrite a contract that it said was "broadly worded with few deliverables." Assured of funding from Mr. Murtha, Concurrent told the Air Force that it "should not attempt to manage" the work, the Pentagon report said, and that the company said it had "no interest in being hired help."

In 2004, the Justice Department's Inspector General found serious problems in Concurrent's handling of a Murtha-backed contract to develop technology for use by police. The audit questioned the company's handling of $1.8 million, and said that $647,000 had been improperly charged to general operating expenses.

Since 2000, Concurrent employees have contributed at least $117,000 to Mr. Murtha's campaigns.

Daniel DeVos, Concurrent's chief executive, said in an interview that the company ironed out its problems with the Justice Department and that its more recent grant programs have run smoothly. He acknowledged past problems in a handful of other programs, some of them reflecting the difficulty of dealing with government bureaucracy, he said.

"All of our programs are audited, and in well over 90% of cases there are no problems at all. In the few cases where issues are identified, we work hard to resolve them," Mr. DeVos said. He added the company was working to wean itself from earmarks, pursuing competitive contracts in environmental services and other areas. "We have gotten a great deal of leverage out of earmark funding, but it's a decreasing percentage of our work."

Duplicated Efforts

Johnstown's National Drug Intelligence Center has cost U.S. taxpayers almost as much as Concurrent's contracts. Since the center opened 13 years ago, Mr. Murtha has steered $509 million its way. For Johnstown, it has brought 300 federal jobs and the restoration of an abandoned red-brick department store downtown, now its headquarters.

The center, operated as an arm of the Justice Department to provide intelligence and analysis to combat drug trafficking, has been a target for lawmakers opposed to pork-barrel spending. Even before the center opened, the General Accounting Office had called it a waste of money because it duplicated drug-intelligence gathering in Washington and at a center on the Texas-Mexico border. It spent millions on shoddy drug-intelligence reports, and on analytical software that didn't work well, congressional investigators said last year.

For 2008, the White House had proposed spending $16 million to shut the center down. Mr. Murtha fought back and added $23 million more to the intelligence bill to save the facility for another year. In a recent letter to the House Intelligence Committee, he called the center "an asset to our intelligence community [and] an effective fighter in the war against drugs."

Other firms have grown rapidly with Mr. Murtha's help. ProLogic, a closely held software and technical-services firm based in Fairmont, W.Va., opened a facility in Mr. Murtha's district two years ago, though its headquarters are less than a half-hour away. The ribbon-cutting by Mr. Murtha and other politicians promised more local jobs, and the congressman's office put out a news release taking credit for recruiting the company; more earmarks were soon steered to ProLogic.

FBI Investigates

Funding for the new facility also helped the chief executive. Local real-estate records show that the building is part-owned by the CEO's family; ProLogic pays a monthly rent higher than prevailing local rates. A ProLogic official said the rent was justified because the building had to have the special wiring and shielding required for classified Pentagon contracts.

Ken Boehm, of the conservative nonprofit National Legal and Policy Center in Virginia, says that county records reveal that ProLogic had similar rental arrangements in other facilities where it carried out defense contracts. He noted that four of its six locations are in the districts of members of the House appropriations committee.

ProLogic was subpoenaed last year as part of a broader Federal Bureau of Investigation probe of earmarks granted by Rep. Alan Mollohan, a West Virginia Democrat, whose district includes ProLogic's headquarters. Both the congressman and company have denied wrongdoing. More recently, FBI and Defense Criminal Investigative Service agents have begun looking into the alleged illegal diversion of earmarked funds to a commercial ground-radar software project, people close to this inquiry say.

One approach squeezes even more value from earmarks. James Ervin, a retired lieutenant colonel, lobbyist and longtime friend of the congressman, helped found a venture-capital fund, Four Seasons Ventures, that invests in companies that have gotten earmarks and federal contracts. In a confidential document for prospective investors reviewed by The Wall Street Journal, Four Seasons says its principals include people with "long and proven expertise in government acquisitions and appropriations." The firm doesn't disclose its investors.

According to the Four Seasons Web site, portfolio companies include PharmaThene Inc., a biodefense research firm, and Raydiance, a laser maker. Both received Murtha-backed earmarks and are lobbying clients of Mr. Ervin. Mr. Ervin declined to comment.

There's no evidence that Mr. Murtha personally profits from the hometown spending he rams through Congress. He ranked No. 333 in net worth among the 435 members of the House in a 2005 analysis by the nonprofit Center for Responsive Politics. But his campaign coffers have risen since he became chairman of the defense-spending panel. In the first nine months of this year, Mr. Murtha's campaign committees have reported contributions of more than $1.05 million.

Grainy Abscam Video

Mr. Murtha's devotion to his district became clear 26 years ago, in an infamous encounter that would foreshadow the young congressman's long career. He told an FBI agent -- posing as a lawyer for a rich Arab sheik -- that he was reluctant to take the $50,000 in cash the agent placed on a desk, supposedly in exchange for help getting the sheik a U.S. visa.

"After we've done some business, I might change my mind," Mr. Murtha said on the grainy black-and-white video shot as part of the FBI's Abscam sting in 1980. The key, he told the undercover FBI agent, was investing in his district. "I think with a tie to the district, there's no problem at all getting this taken care of," he said, referring to helping the sheik enter the country. Mr. Murtha wasn't charged in the case. He cooperated with the government, testifying against two congressmen who were eventually charged and convicted for accepting cash in different meetings.

Seated with the FBI agent, Mr. Murtha also explained why he needed to be more careful than other lawmakers, including the two he later testified against. "I expect to be in the f-ing leadership of the House," he told the agent. "I'm delighted to do business with you. S-, I do business like this all the time to get companies into the area."

http://online.wsj.com/article_print/SB119371051667975920.html

 

BMW Hydrogen 7: Not as Green as it Seems

BMW is manufacturing the first series of hydrogen fueled cars. They're not as green as they seem. For a start, they're incredibly thirsty -- and they will put more strain on the environment than a heavy diesel truck.

There's a new method for fueling cars. Instead of the usual dispenser nozzle, a plastic hose about the size of a sewage pipe is attached to the vehicle. An automatic clasp closes automatically around the tank opening.

The airtight hose system was developed by Germany's Linde conglomerate and has already been installed at several German gas stations. It's designed to allow the average person to fill his or her car with liquid hydrogen in just eight minutes. Berlin is one of the few places that already disposes of such a filling station.

http://www.spiegel.de/international/spiegel/0,1518,448648,00.html