India doesn’t need SAARC

Instead of getting caught in the pointless politics of SAARC, India should create a web of bilateral relationships

India doesn’t need the South Asian Association for Region Cooperation (SAARC). India’s neighbours wanted the outfit so that they could collectively pin down their bigger neighbour, something they cannot do individually.

Why New Delhi plays ball with this is unfathomable, for given India’s size, geography and power, it can achieve bilaterally everything that SAARC can achieve multilaterally. From freer trade to open skies, from counter-terrorism cooperation to join management of environmental resources, it is far easier for New Delhi to work out a web of bilateral arrangements than to attempt a big multilateral negotiation. It is hard to make a case for SAARC on the grounds of efficiency and effectiveness of subcontinental cooperation. [See this from the archives] Moreover, there is a lot of slack in the domestic policy environment before the neighbourhood becomes a constraint to India’s growth.

Some argue that India needs SAARC as a regional geopolitical bloc, on the lines of ASEAN or even a European Union. To accept this would be to ignore the history of the subcontinent’s political map looks the way it does. No country in the subcontinent needs regional solidarity to counter foreign powers. On the contrary, every one of India’s neighbours needs a foreign power to counter India’s influence. The dream for a ‘South Asian Union’ on the lines of the European Union is absurd, because Partition and Bangladesh were expressions of desires against being part of a liberal, democratic, secular, plural state. In fact, the EU took five decades to move towards something like the Indian Union (which is what the Republic of India is).

Prime Minister Narendra Modi was off on the right footing when he invited leaders of the subcontinent’s states to his swearing in ceremony. That was an expression of how India can unilaterally act to bring together the subcontinent. The SAARC summit, on the other hand, is at best a waste of time, and worst a perpetuation of an old mistake.

Related Links: We are not South Asian; and if Maldives is a neighbour, why isn’t Indonesia?

Dogma, Reason and Democracy

How to protect Reason from democratically-enforced dogma

Democracy is popular. Other than self-serving polemic promoted by authoritarian regimes or by dispossessed elite, it is rare to find anyone criticising democracy. For thoughtful people, democracy is, as that Churchill cliché goes, “the worst form of government except for all the others.” Yet some—perhaps even a lot of—scepticism is warranted in terms of democracy’s role in the long war between Dogma and Reason that has been in progress for much of human history.

Indeed, it is possible to argue that most—if not all—big political debates are essentially different forms of the fundamental conflict: should humans follow some form of dogma, or use knowledge, reason & critical reasoning in making decisions. What individuals do in their private lives is less of a concern. How they decide on public issues matters a lot more. Should slavery be banned? Should abortion be declared criminal? Should women be allowed to willingly immolate themselves on the pyres of their dead husbands? Should cloning be allowed? Should we allow foreign direct investment in retail? Should voting rights belong to citizens or to all people living in the country? The most vexing questions of politics are essentially dogma vs reason, playing out in different contexts.

So what role does democracy play in this conflict? Do democratic states always tend to push the moral envelope towards greater reason? For instance, aren’t democracies more liberal than non-democracies? Perhaps yes. But this might merely be a temporary correlation: are they liberal because they are democracies, or democracies because they are liberal? We can’t say for sure, as there are other factors at play that might have made societies more liberal, democratic or both.

Bryan Caplan has a compelling argument on why democracies fail:

“In the view of most democracy skeptics, it fails because it does not do what voters want. In my view, democracy fails because it does what voters want. In economic jargon, democracy has a built-in externality. An irrational voter does not hurt only himself. He also hurts everyone who is, as a result of his irrationality, more likely to live under misguided policies. Since most of the cost of voter irrationality is external—paid for by other people—why not indulge? If enough voters think this way, socially injurious policies win by popular demand.[The Myth of the Rational Voter: Why Democracies Choose Bad Policies]

Mr Caplan’s argument is that people have systematic biases that, unlike random biases, do not cancel each other out. In other words, if biases towards colour of shirts were random in the electorate, then they would cancel each other out and no particular colour would be more likely to win. However, if people had a systematic bias towards purple even to a small degree, the electoral verdict is quite likely to go purple. (Read the book to understand more deeply how this happens)

This argument, in itself, is a powerful indictment of democracy. It explains why democratic governments choose policies that are bad for them. If we factor in “education” (in the sense of reasoning, critical thinking and open-mindedness) then democracies can amplify dogma, in extreme cases, into a vicious cycle where society surrenders to dogma.

Consider a democracy where a simple majority of the people have an unshakeable dogmatic belief that Everyone Must Wear Purple Shirts. The rest of the people have a shakeable belief in everything and make up their minds based on available facts. Since the facts do not point to any advantage of purple shirts, they disagree with the Dogmatists who insist on purple shirts. Let’s assume everyone votes. It is quite likely that the politician who runs on a “Wear Purple” ticket is likely to defeat her competitors. And once she acquires political power, depending on her political strength, she is likely to change public policies to promote the wearing of purple. She is likely to focus on the education system, introducing purple into the curriculum so that she has an inherent advantage against the Reasoning politicians. In the future, politics will be about the shade of purple that people must wear.

In this highly simplified example, Democracy worked, the majority got what they wanted, but Reason lost. The real world is more complex, but the fundamental argument remains valid. To the extent that people subscribe to dogmas, democracy is a risk to Reason and values that derive from it.

Mr Caplan sees democracies failings as an argument for governments to let the market determine economic outcomes (his book consciously limits itself to economics). Given the risk democracy poses to Reason*, and therefore, to itself we should go further. The zeroth requirement is for democracies to be constrained by a republican constitution that affirms fundamental rights.

First, those who prefer a slightly more reasoning society than a slightly more dogmatic one must unequivocally defend freedom of speech and expression. Unpopular and dissenting voices must not only be tolerated but enjoy absolute protection. As my colleague V Anantha Nageswaran noted during a recent conversation on this topic, actors in ancient India enjoyed total freedom and protection for what they said on stage. Likewise, court jesters. Such freedoms are protected in many democracies, but your mileage varies depending on which democracy you are speaking out in. Freedom of speech and expression must be protected in law and in practice.

Second, those who believe minds should not surrender to dogma must hold up the freedom of education. This means that while the government can pursue uniform standards, syllabi and curricula in its role of delivering a public good, it should not be allowed to monopolise the curriculum. People should be free to start and send their children to schools of their choice, teach and learn curricula of their choice, with no interference by the government or self-appointed custodians of public values. If this means some parents send their children to religious schools, nature schools or witchcraft & wizardry schools, so be it. It would be a small price to pay in the defence of Reason.

Third, the separation of powers into the legislature, executive and judiciary is not only for the purpose of ensuring that no single entity is too powerful. It charges the judiciary with the duty to defend the constitution and dispense justice without reference to what is popular. Here again, your mileage varies from jurisdiction to jurisdiction, from time to time. In recent years we have had the US Supreme Court under John Roberts declaring it is not the job of the Supreme Court to “protect people from the consequences of their political decisions”. In India, while courts have been criticised for judicial activism and overreach, cases of judicial populism have received lesser attention. Trials by jury suffer from the defect that they subject questions of guilt and innocence to popular mores. This doesn’t mean trials by judges escapes the defect completely: judges are cut from the same cloth as jurors, and both from that of their compatriots. One way to reduce such risks might be for judges to come from other jurisdictions—rotate them more frequently across states, and bring in foreign judges from similar jurisdictions.

* Disclaimer: In a contest between Dogma and Reason, The Acorn stands on the side of the latter. Hence the implied value judgement.

In defence of lobbying

The lobbying industry must be allowed to function transparently within the ambit of the law.

This is an unedited draft of today’s column in Business Standard.

A famous Indian politician was searching for an issue that could energise his party cadre and move the masses. An group of businessmen produced a report on “making India self-contained in her supply” of a particular commodity. It had arguments on the rationale on consumption of the commodity, why it was necessary and why the poor needed it more than the rich. One of the politician’s close associates forwarded the report to the party leadership across the country while his personal secretary echoed the report’s arguments in an op-ed article the subsequent week.

The politician embraced the cause and triggered off a historic agitation, the basis of which, partly at least, was the output of corporate lobbying. The politician was Mohandas Karamchand Gandhi, the industry group was FICCI and the commodity common salt. The historic event in question, of course, is the Salt Satyagraha (see this post for details). It would be hazardous to suggest that a FICCI monograph singularly triggered off Gandhi’s famous march to Dandi. It would, however, be equally hazardous to discount the importance of lobbying on national politics then, as indeed in contemporary times.

The current debate over corporate lobbying conflates two separate issues: one, the legitimate persuasion of politicians on the merits of a certain policy measures and two, the illegal activity of bribing them in pursuit of this goal. The latter is wrong. The former is necessary. We might be in the throes of moral panic, but we should not mix up the two.

Lobbying is inevitable in a modern representative democracy: the more rules you make, the more complex the economy, the more the need for ‘specialists’ to intermediate between citizen, corporation and the state. That’s why we have lawyers, who help individuals and firms navigate the legal system. That’s why we have chartered accountants, who interpret the arcana of tax laws. These intermediaries play an important economic role by specialising in such matters and saving you and I the trouble of mastering law and the tax code when all we want is to go about our business.

Lobbying serves a similar function. It is far more efficient for businesses to hire public affairs specialists and lobbyists rather than involve the management in the byzantine world of Indian politics. If we consider lawyers and chartered accountants as legitimate professionals, why not lobbyists?

One argument against mainstreaming lobbying is that lobbyists risk making democracy a plaything of the rich. Those with deeper pockets will get to unduly influence government policies. This is reasonable in and of itself. However, isn’t it true that richer people can afford better lawyers and bend justice in their favour? Isn’t it true that richer people have smarter accountants who can find ingenious ways to pay less tax? More importantly, isn’t it the case that richer people already influence government policies, but in opaque, shady, dubious or wholly illegal ways? Those who doubt this can contact Mr Kejriwal for details.

Hey wait! What about the Niira Radia controversy? Doesn’t that connect shady corporate lobbying to high corruption? Yes, it does. However, that controversy arose in a country where lobbying is not only unregulated by perceived by many as a dubious activity. Had lobbying been a recognised as a legitimate profession, bound by its own norms and governed by a set of rules—like law and accountancy—we might have been spared some of the scandal.

This is, in fact, a good time to have a public debate over lobbying. Before 1991, most corporates would line up outside government offices as supplicants pleading for licenses, quotas and permits. After 1991 and until the exposure of big corruption scandals of 2010, canny businessmen sought to create legislative loopholes that would allow them to squeeze through, but keep their competitors out. This approach is becoming untenable.

Economic growth, globalisation, the Right to Information (RTI), urbanisation and the penetration of social media have changed the nature of how India’s corporations and governments engage each other. Businesses that try to create and exploit loopholes have a greater chance of being exposed, with the attendant loss to reputation and valuation. Like their counterparts in mature democracies, Indian businesses will have to engage in public affairs in cleaner, more professional, and transparent ways.

This can only happen if we allow the lobbying industry to function within the law. It is far better to regulate it rather than drive it underground. Indian democracy will be better served by placing the lobbying industry in a regulatory environment that requires companies to declare their lobbying activities and expenses, lobbying firms to disclose their activities and lobbyists to adhere to professional codes of practice. This is what the United States does. It’s not a silver bullet, but certainly an improvement over hypocritically persisting with a sanctimonious moral blindfold and pretending to be surprised that odious things happen in our country.

Copyright © 2012. Business Standard. All rights reserved.

Pax Indica: Playing the energy game with China

Why India must promote democracy abroad & private enterprise at home

An interesting conversation with Rajeev Mantri & Yogesh Mokashi last week led to the writing of this piece: how might India compete against China in the global quest for energy (and other) resources:

Moreover, the “game” is not one-off. It is a continuous ongoing game that will be played for generations. Nor is it entirely “zero-sum”. It is possible to envision a world where both China and India have access to the energy resources they need. Such a world is possible even when, perhaps only when, the two countries are competing (in a free market) for those resources. Such a world, however, will cer-tainly not come into being merely by wishing for it. It has to evolve, under the tender loving care of nuclear weapons.

The Indian government is trying to improve its score. It has set overseas acquisition targets for state-owned corporations and permitted them to spend $1.1 billion ‘without government approval’. This might yet produce some results—especially if it is backed by political support. It is unlikely, though, that bidding wars with companies that have parents with the world’s deepest pockets are winnable. That’s not all. As India found out in Kazakhstan in August 2005, the kid whose dad drives a Merc can get the goalposts shifted after the game begins.

Clearly, India’s strategy must be different. It must be one that plays to India’s strong points. It must also be one that undermines China’s advantages. The greatest asymmetries that are in India’s favour are democracy and private enterprise.

Consider. It would be much harder for China to move goalposts by coddling the dictator if there were no dictator to coddle. It would be much easier for Indian companies to compete against Chinese ones if the former didn’t have the Government of India as the single largest shareholder. In other words, in the long term, it is in India’s interests for resource-rich countries to be democracies. It is also in India’s interests to facilitate its private sector to expand globally. [Yahoo! India]

Read the whole thing at Yahoo!

The world’s punching bag

The fault, dear Mr Naik, is not across the Himalayas

Mint has a very good editorial in response to the accusation that China is “systematically killing” Indian manufacturing.

Admittedly, there are geopolitical considerations at stake for India. But as the trade deficit with China widens over the last few years, it’s giving vent to populism, not some concerted strategy…
And if India wants its domestic manufacturing to compete at comparable costs, it should stop trying to block outside firms, and ask how it can better internal conditions. But that would mean a concerted policy that improves financing conditions, not to mention land acquisition clarifications and better regulations. Protectionism is just so much easier, no? [Mint]

Urban Indians lead the world in support of free markets


Ajay Shah draws attention to some very interesting findings from a Pew Global survey. To the question “whether you completely agree, mostly agree, mostly disagree or completely disagree with the following statements: Most people are better off in a free market economy, even though some people are rich and some are poor“, 81% of the (mostly urban) Indians said they agreed. As Dr Shah writes “In 2002, India was halfway in the list with 62% support. In 2009, India is at the top of the list, with 81% support.”

Similarly, to the question “What do you think about the growing trade and business ties between (survey country) and other countries – do you think it is a very good thing, somewhat good, somewhat bad or a very bad thing for our country?” 96% of the Indian respondents said that it’s a good thing, compared to 88% in 2002.

A few years ago (circa 2005), an India Today survey showed that the urban middle class wanted the job security of the public sector but the income and opportunities of the private sector. Are urban Indians changing their mind?

Dr Shah believes that a combination of demographic change (the median Indian is 29), experience of sustained economic growth and the absence of the need to protect a welfare state might be the reasons why the urban Indian ended up on top of the table.

Three thoughts on Independence Day

On socialism, constitutionalism and curbing intolerance

For contemplation on Independence Day—on the need to expunge socialism from the Constitution in letter and spirit; on the norms of public activism; and how competitive intolerance might be reined in.

Related Links: Three thoughts on Independence Day 2007, 2006, 2005, 2004 & on Republic Day 2008, 2007, 2006, 2005

Intolerance insurance

Markets in everything*

If the Indian government is failing to clamp down on competitive intolerance, the film and insurance industries have devised their own solution:

Politics and public sentiment, Bollywood has learned the hard way, can wind it at the box-office. With community protest increasingly becoming part of the noise accompanying a film release, the industry has decided to hedge its bets. And what better way than buying insurance cover. Most new Bollywood films are insured against everything from bans to terrorism, says producer Punkej Kharbanda, who made the controversial Matrubhoomi (A Nation without Women).

“…producers buy cover on an approximate and not actual budget,” says a trade insider. Apart from traditional cover for cast/key members, props and equipment, raw stock, negatives and extra expenses, a film producer is also protected if a movie is hit by adverse weather or if there is an illness in the family.

“Another attractive policy,” says leading Bollywood lawyer Shekhar Menon, “is the Multimedia Liability Insurance (Errors and Omissions) which protects directors from a quiver of legal claims, including those arising from defamation, libel or slander; copyright infringement (such as in the Raakesh Roshan-Ram Sampat Krazzy 4 spat or the Manoj Kumar-Shah Rukh Khan Om Shanti Om encounter); trademark infringement; invasion of privacy, plagiarism; emotion distress; negligence and even imprisonment.” [TOI]

There you go: the insurance markets may now help define the practical limits of freedom of expression.

* With due regards to Tyler Cowen who loves finding markets in everything