11th April 2017
A discussion with Jayant Bhandari regarding the underlying causes of India’s misery
We know that Jayant supports capitalism and has broadly very similar to mine. However, he differs in an important detail – whereas I am hopeful that India can change should its governance system incentives be changed, he is not.
He believes the causes of India’s misery are much deeper – cultural. So we are having a discussion.
There are significant implications of the outcomes of this discussion.
If Jayant is right then I should not be wasting my time in trying to set up a liberal party to reform India’s governance and policies because India’s culture must be changed first.
On the other hand, if I am right and Jayant is wrong, then there are implications for Jayant’s future work.
I’ve taken permission from Jayant to put this discussion out in public. From here on, Jayant can either choose to respond via comments here or via email.
MY INITIAL COMMENT TO JAYANT
I was attracted to one of your comments:
Economists and analysts who think that corruption and chaos can be removed in India through regulatory means or firm leadership (if at all someone rational can somehow get to the top job) are utterly wrong. They completely fail to understand how very deeply entrenched and entangled these are in the habits and culture of India.
I wonder whether you’ve had a chance to read BFN (http://sanjeev.sabhlokcity.com/book1/BFN-fullbook.pdf)? In my view (and extensive experience of working in India) the issue is purely of the incentives in the governance system. And these are entirely influenced by Nehru’s socialist ideas which are 100 per cent pervasive in India. Yes, culture is important, but incentives are far more important.
Incentives in my view are proximal causes. Why certain incentives exist is a product of the culture. It is easy to blame Nehru (who was a mere proximal cause), but socialism has been the culture of India for time immemorial. I recall reading books of Mulkraj Anand, which portray the poverty and desperation of people of India during pre-independence. He writes a lot about the caste system etc.
Indians will always elect a totalitarian, statist to rule.
How can you get a good leaders in India? If you interact and communicate with Indians, who are at best confused and cloudy in their thinking, you realize that a change in governance is virtually impossible in India.
Tagore in my view understood the situation well. He was against spending too much time and energy on fighting with the British. He preferred to awaken Indians. He preferred to work with the British, as his mentors in Bengal Renaissance movement did earlier. Tagore movement came to an abrupt end with the politicization of cultural renaissance. In my view what India needs is a revival of the cultural renaissance.
Hayek put this well… He said that our institutions are a reflection of our underlying culture. You cannot change our institutions without changing the culture. This is where I like to put all my efforts.
MY FURTHER COMMENT
Jayant, your argument is underpinned by the belief that “socialism has been the culture of India for time immemorial. Indians will always elect a totalitarian, statist to rule.”
This takes us into analysis of Indian history – analysis at a level that’s well beyond my capacity. I might just make a few observations, first to support you and then to refute you.
In support of your thesis:
- There is no doubt that the cultural rebellion against authority was the root cause of the rise of the West. We see that in the Magna Carta and 1689 Bill of Rights. We see that more clearly in the American Declaration of Independence. Deirdre McCloskey goes even deeper and shows how the Dutch began to value the bourgeoise (a kind of Weberian Protestant ethic argument but much richer and nuanced).
- India has not seen such a cultural rebellion against authority. It is unheard of for a senior officer in India to take their junior staff (such as junior clerk) out for a discussion over coffee. India’s hierarchical set up is extraordinary – and is found in every part of the culture, i.e. religion (caste) and business.
- Japan has a somewhat similar system of hierarchy. The Burakumin are similar to the Dalits in some ways and are treated badly inside Japan. However, when they migrate to the USA, they are accepted as equals by society and are able to flourish.
Against your thesis:
- Indian kings were paternalistic but did not directly engage in business (for the most part; although they did operate a few “public sector” undertakings). There was also a flourishing private sector school system (see The Beautiful Tree by Tooley for pathbreaking research on this issue). Arthashastra has much in it about supporting business and trade (particularly imports).
- The extreme poverty you cite (Mulk Raj Anand) was largely limited to the lower castes. However, India as a whole was more capitalist than socialist, and average per capita income remained among the highest in the world for most of the past 2000 years (cf. Angus Madison).
Hayek put this well… He said that our institutions are a reflection of our underlying culture.
Actually there is a bit of nuance in Hayek’s worldview, given he was such an astute student of history. At the end he said: “My emphasis is on the positive task of improving our institutions”. He believed that institutions are capable of being improved. It would be foolish to suggest otherwise. One of his great “heros” was Macaulay, and we know that Macaulay played a key role in the 1832 Reform Act, which played a significant role in reforming the incentives in British democracy. He knew the role played by Burke, by Mill, by many others.
Yes, he noted that “Not all these non-rational factors underlying our action are always conducive to success. Some may be retained long after they have outlived their usefulness and even when they have become more an obstacle than a help.” And further that “”Though freedom is not a state of nature but an artifact of civilization, it did not arise from design. The institutions of freedom, like everything freedom has created, were not established because people foresaw the benefits they would bring. But, once its advantages were recognized, men began to perfect and extend the reign of freedom and, for that purpose, to inquire how a free society worked. This development of a theory of liberty took place mainly in the eighteenth century. It began in two countries, England and France. The first of these knew liberty; the second did not.”
He was a liberal, not conservative. He believed that change is possible.
Now coming to some key arguments to refute your thesis about culture predicting everything (or almost everything).
a) In many ways the culture of the Protestant Europeans is very similar (excluding South Europe). But we know the difference between East Germany and West Germany. How do you explain that the same culture could yield such dramatically different outcomes?
b) How do you explain South and North Korea?
c) How do you explain that a change in incentives (governance system) in Singapore took it from penury to the richest nation on earth?
d) How do you explain that Indians who migrate to the West adjust readily and achieve excellent outcomes?
e) How do you explain that standard economic analysis of the incentives that operate in the Indian government system (see BFN) precisely predicts the outcomes we observe? In your view, it wouldn’t matter what policies or governance incentives India adopts since Indians would behave the same, regardless.
f) How do you explain that when capitalist policies were adopted (e.g. liberalisation), India responded with a great increase in productivity and innovation?
In brief, your cultural hypothesis is important, and can probably explain around 10 per cent of the variation in a society’s performance. However, 90 per cent of a society’s performance is directly and clearly explained by its governance system and the incentives created by its policies. Therefore, it is essential for India to have a liberal party that creates such incentives.
The message of Hayek was of hope and he himself was instrumental in educating the world about the consequences of the incentives of freedom. He did so in the belief that institutions can change. And quite quickly.
Friedman spent many years of his life studying Hong Kong and showing why freedom can rapidly transform any nation.
Dierdre McCloskey is engaged in a similar project.
I don’t understand why you wish to try to change India’s culture when all you need to change are the incentives that people face.