Sanjeev Sabhlok's blog

Thoughts on economics and liberty

Our politicians have no option but to be corrupt

Sanjeev Sabhlok

This article was published in the June 2009 issue of Freedom First.

No other well-established democracy generates the super-corrupt, even criminal political leaders that ours does. This month I outline why we necessarily end up with corrupt politicians.

Black money – the fuel of our democracy

India is a mega-democracy. Our average constituency has more people than many countries do. Therefore, if a candidate wants to reach out to the 15 lakh voters of the average Indian constituency, many of them living in remote villages, he has to spend quite a bit of money. Most major candidates spend a few crore rupees in each election, and someone who spends only within the official limit of Rs. 25 lakhs per constituency is almost certain to lose.

Further, we Indians are somewhat peculiar. We contribute a lot of our time and money to NGOs, schools, and temples, but refuse to pay a single paisa to political parties. So how are our parties to find the crores of rupees they need to contest elections? The answer is self-evident: By entering India’s underworld and tapping into its huge rivers of corrupt black money. Criminal ‘businessmen’ who want to take undue advantage of corrupt politicians are the major financiers of political parties. But far more money is collected by incumbent governments directly – through ‘cuts’ from government contracts, under-the-table charges for admission to government medical colleges, and auction of ‘lucrative’ government jobs to the highest bidder. A huge mafia is busy at work, running our country round the clock.

Laws designed to keep out the honest

In addition, our electoral laws weed out all competent and honest persons. This is how:

Filter 1: Monetary losses keep the prudent out Consider Mr. Harishchandra’s case. He is an honest (and modestly competent) middle class person who wants to be our political representative and is determined to spend only up to the prescribed limit. He manages to raise 5 lakhs in ‘white’ money from his supporters, and then needs to borrow the remaining Rs. 20 lakhs. But because we do not reimburse candidates the costs of contesting elections, a simple calculation shows him that even if he wins, he will lose a fortune (this wouldn’t happen in Australia where they reimburse candidates a small amount for each valid vote polled – see my book, Breaking Free of Nehru, for details.) Being prudent, he (wisely!) pulls out. Thus, our laws filter out 99 per cent of our population at the first step. The entire poor and middle class, and all the prudent rich are ‘legally’ deemed to be ineligible to contest.

Filter 2: Low salaries keep out the competent Now, there may well be some really competent people out of the remaining one per cent (imprudent rich). But they will be compensated very poorly for their time if they get elected – only Rs. 33,000 per month (about 20 paisa per year per voter). Therefore only those who are capable of earning equal to or less than an MP’s salary will join politics – mainly the incompetent children of the imprudent rich.

Filter 3: Perjury keeps out the honest Since winning elections requires spending at least a multiple of the official limit, and that can only be done by spending black money, almost all our successful candidates must necessarily lodge fraudulent electoral accounts. Perjury is therefore a basic requirement for becoming an MP. But of course, that completely rules out all honest people.

The socialist intervention of electoral expenditure limits

Some of us remember that banning the import of gold in the 1960s and 1970s merely created gangs of smugglers. Similarly, forcing political parties to restrict their spending is guaranteed to make politics a den of crime. But we must also object to this restriction on philosophical grounds.

A free society must never restrict any activity unless it has been conclusively proven to harm others. So on what basis can a free society impose such limits on electoral expenses, since contesting elections is a perfectly legal activity – indeed, a sign of good citizenship? Everyone must therefore remain free to preach their political views without any ad hoc restrictions. Let’s say the supporters of a popular leader want to fund his campaign heavily. On what basis do we restrict the freedom of citizens of a free country to fund their preferred leader? (That also rules out limits on donations to political parties.) Why do we care about how clean money is used – if its purpose is honest? The problem, surely, is only with black money. So let us have policies that deal with that problem, and not randomly block freedoms by imposing arbitrary restrictions.

But apparently, some socialists feel that imposing limits helps us to level the playing field and reduce any undue advantage that candidates who spend more apparently enjoy. But contesting elections is about our freedom to persuade others, not about equal opportunity. And if we are really so keen about equal opportunity, why not simply ‘elect’ our representatives through a random lottery among all citizens?

Finally, we all know that merely throwing wads of money at voters never got anyone elected. Our slum dwellers are sharp enough to take bribes from everyone but then vote, inside the secrecy of the polling booth, only for the candidate of their choice. There is thus not one sensible argument in favour of imposing socialist limits on electoral expenses.

Worst of all, these limits are never enforced, anyway. There is no requirement to independently audit and publish all political receipts and expenditures. Only those without ethics (the hypocrites) can therefore mingle with such a political system. And thus, so while the Westminster model we follow is able to generate competent and honest leaders in Australia, our version only generates the most dishonest. And after (thus) hiring the most dishonest, we hand over the keys of the public exchequer to them! We elect thieves and then act surprised when they loot the nation.

The reforms we need

If we really want honest politicians, we must demand the abolition of socialist election expenditure limits, and build audit systems to enforce the use of white money in elections. We can begin this task right now, by getting a copy of our local candidates’ electoral accounts from our Returning Officer for Rs. 1, auditing these accounts, and publishing our findings.

In addition, the state must partially reimburse candidates (say, Rs. 15 for each valid vote cast). That will make it easier for honest people to contest elections. Finally, we must increase the wages of MPs and MLAs at least by a factor of ten, while getting rid of their hidden perks. That will encourage competent people to enter politics. While our citizens will still need to start contributing to political parties and get more actively involved, at least we will then be on the way towards an honest government.

Freedom Team of India (FTI)

Let me assure you that these reforms won’t happen by themselves. Liberals will have to implement them by first forming government. The FTI (http://freedomteam.in) is working towards that objective for 2014 and beyond. It has released its first draft policy (on religious freedom) and has invited comments on its website. I look forward to your active participation and support.

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Is liberalism on the decline?

An academic from Russia asked me the following questions (in bold) a few weeks back. I'm posting my responses here for the record, noting that I did not have much time to respond and so the language and argument could well have been significantly improved. But a blog is meant for such things: both semi-finished and finished products.

1. Is liberalism of Western type on the decline from both political and intellectual point of view? If it is so, can you define what is the concrete expression of this decline, and what can be a possible transformation of the whole notion of liberalism? If you disagree with this point of view, how could you define the present political and intellectual status of liberalism?

As is well known, there are a range of Western-type political conceptions that consider themselves liberal: the defenders of liberty. I subscribe to the version broadly classified as classical liberalism. In my view, later (mostly 20th century) versions of ‘liberalism’ do not defend our liberties but are in essence a form of welfare socialism. A great amount of mercantilism and statism also continues in the West today, masquerading as liberalism.

So we would need to know what ‘liberalism’ we are referring to (e.g. to suggest that there is a liberalism of the ‘Western type’ is a very broad generalisation that simply cannot capture the differences among these various forms). Since, in my view, the West has hardly ever been fully liberal in the classical liberal sense, there cannot be a decline of liberalism. Merely variations in the levels of welfare socialism and the like.

Whether liberalism is on the decline, one thing is sure: the freedoms of the West are currently declining badly. Illiberal ideas seem to be growing stronger in the West with each passing day, though the recent elections in the European Union given pause to such growth, indicating that the common citizen is beginning to dissociate himself from the false claims of social democrats and welfare socialists who have denied the value of liberalism in modern society.

My regret is that many policy makers in the West have refused to recognise that the recent ‘global financial crisis’ (GFC) has been caused primarily by their rejection of freedom (see http://sabhlok.blogspot.com/2009/01/for-wealth-destroying-event-of.html [Addendum: this has moved – search on google) for arguments to illustrate my contention). The type of illiberal policies instrumental in precipitating the GFC include the centrally administered price of money by central banks (noting that central banks are essentially Marxian, being one of the ten pillars of communism: classical liberals do not advocate centralised money or banking or the administered price of money). Western welfare socialism has also meant a major government subsidisation of banks and mortgagees and a range of other bad practices too many to recount. Welfare socialism in its various forms seems to be very attractive to politicians in their short term interest, but it badly price signals and confuses investors, leading to huge wastage of capital and hurting the consumer. Poor regulation of the investment banking system and financial derivatives has added to the mix of problems for the West. None of these problems have come from freedom that is constrained by accountability. There has been either too much interference with markets, or too much freedom given without prudential regulation.

Sadly, the solutions currently being advocated by governments in the West will inevitably increase its economic problems in the face of rising competition from China and India.

There is only one long term solution for the West (and the world, more generally): to reinstate and advance freedom with accountability. Fortunately, the internet has prompted a revival of the ideas of freedom. The battle for the hearts and minds of policy makers is being furiously waged today. It would appear that the ultimate victory and resurgence of freedom is inevitable, given historical trends of the past few hundred years. I refer to the long term-trend towards increased freedom in the world. But I do not believe the West (or the rest of the world) will adopt liberalism and freedom easily. In the draft manuscript of my next book, The Discovery of Freedom – (https://www.sanjeev.sabhlokcity.com/discovery.html) I have noted that: “Given the early stages or freedom in the world today, it may take another 200 years or more for the policies of freedom to become more widely adopted.”

It is heartening to note the growing number of educated people who are beginning to question illiberal policies. A recent example of the debates against centralist or statist interventions in the area of higher education and research and development is found in the book, Sex, Science and Profits by Terence Kealey, which I have reviewed at: http://sabhlok.blogspot.com/2009/06/sex-science-and-profits-by-terence.html.

In brief, the fight for our freedoms worldwide has only just begun. There will be many temporary setbacks on the journey, but despite them liberalism will keep spreading and expanding across the world.

2. If you agree with the point of view that today liberalism is undergoing a period of crisis, why do you think there has been no ideological alternative to it within other schools of thought? Do you consider such an alternative possible or should we simply wait for the "rebirth" of the liberalism (meaning that a new version will reject some of its forms that have become unacceptable by now)?

As noted above, I do not believe that any ideological alternative to classical liberalism is needed. Only its continued and steady resurgence. This statement might sound too complacent, but liberalism encompasses an inbuilt need for continuous improvement. As Hayek said, “There has never been a time when liberal ideals were fully realized and when liberalism did not look forward to further improvement of institutions.”

3. Do you agree that one of the factors that led to a decline of liberalism, was the misuse of the notion during Bush era, when neo-liberal ideology got associated with militarism and 'spreading democracy’ by force? In that case, doesn’t it signify a serious political and ideological defeat for the West?

While there has been no decline of classical liberalism, there has been a noticeable decline in freedoms in the West over the past fifty years or so.

Regarding the recent economic plight of the West, the GFC has little or nothing to do with the former President George Bush’s drive to spread democracy ‘by force’ (that would be a serious misrepresentation of Bush’s stated and implied goals). It has, however, everything to do with Western (Bush’s including) illiberalism in the economic policy arena.

In the draft manuscript of my book, The Discovery of Freedom I have suggested that the West should stop wasting money on foreign aid and shift its focus to supporting freedom throughout the world in non-militarist ways:

“The West could therefore look for ways to teach its ‘fishing methods’ to the poorer nations, and stop providing them with ‘fish’ (which does not reach them, anyway). Doing so will not only be cheaper, it is the only ethical way to help one’s fellowmen without doing their work for them. And of course, before it claims to teach freedom to the East, it is obliged to throw open its markets and stop hiding behind trade barriers. But instead of doing these things, the West has spent, and continues to spend, trillions of dollars in strengthening its defences against its unknown enemies from the East. It then fights with a vengeance over trifles, and pours hundreds of billions of dollars into its ferocious wars. While that may be sensible if the West expects the world to last only for another twenty years, it will be more sensible for it to spend far less money – but on the right things: in spreading the message of freedom.”

I have also outlined many ways by which the West could support freedom. None of these methods include invading any countries.

4. Has the current global economic crisis brought an end to the global liberalization?

I assume you are referring to what is commonly called globalisation which includes both internal liberalisation and external (trade and investment) liberalisation. If so, I doubt it if the GFC has brought an end to globalisation.

First, the so-called global liberalisation till before the GFC was very patchy and incomplete. While more open than at any time in the past century, the world was still very closed. That is why many battles for freedom of trade and investment were still being fought at the WTO. Most countries had still not opened up their economies as would be desired, nor freed their foreign exchange markets.

After the GFC it is true that there has been a growing demand for welfare socialism and restrictions on trade and investment (with USA taking the lead). However, this is likely to be a temporary phenomenon, given the long-term trend towards greater freedom and liberalisation.

Second, it is worth recalling that in 1750, China accounted for 33 per cent of world’s manufacturing output and India 25 per cent. That situation will likely re-emerge in the coming 100 years. But the only way it can happen is for these two countries to liberalise dramatically. Therefore India and China are unlikely to push back their liberalisation. Even the West will sooner or later pull back from its current protectionist phase and re-assert its leadership in freedom.

But the GFC throws up a great once-in-a-lifetime opportunity for developing countries to follow the best policies of freedom and liberalism and to race ahead of the West.

5. If liberalism still has some potential, what versions of liberalism can be acceptable today? What liberal ideas the West will never reject?

Tolerance and democracy will likely remain the minimum expression of liberalism in the West. But if the West continues to harm down its economy then even these freedoms could be threatened. Thus, once the USA nationalises its banks and major industries, it will then be on the early stages of becoming an India, if not a USSR. Fortunately for the USA, I believe it has a good Constitution and it will pull back before the brink.

6. Is religious liberalism possible in any form in present-day society? And what could its possible forms be?

Religious freedom is a mandatory requirement of liberalism. Tolerance for all religions, under the overarching supremacy of the rule of law – a law made by elected citizens – is the way of freedom. Religious liberalism is feasible in all societies, even Islamic ones.

What does the word ‘liberalism’ mean for India ? How has the very notion changed during last decades? Has it been used as a political tool and for what end? Is being called a ‘liberal’ in today’s India a sign of condemnation or praise? And why?

India has been a socialist country ever since Nehru got enamoured by it in the 1920s and 1930s. It therefore remains predominantly socialist even though notionally a few of its economic markets have now been freed up (many restrictions still remain). Indian intellectuals have, by and large, still not understood liberalism and freedom, and are reluctant to call themselves liberal, being happiest to call themselves socialist. Thus there is no liberal political party in India even now. Trying to get one up and running is one of my objectives.

Addendum 13 June 2009. A sensible article by Paul Kelly in The Australian today. Fix it, Don't Break it.

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Sex, Science and Profits by Terence Kealey

The death knell of government funding of tertiary eduation, science, and research.

I accidentally came across this book (London: William Heinemann, 2008) while browsing a bookshop last week and bought it because it was very well written and dealt with economic policy. By the time I finished it (just a few hours after starting it, so engagingly written is this book!) I found that I now have another personal companion for life: a book to live with; to carefully re-read when one has some time on one’s hands. It is on par with my top favourties: Julian Simon’s The Ulitmate Resource; Milton Friedman’s Capitalism and Freedom; Ayn Rand’s Capitalism: The Unknown Ideal.

What I like is that F. A. Hayek is very strongly vindidated through this book (even though Kealey doesn’t cite Hayek even once). The book offers the strongest possible support for sponteneous order and self-interested drivers for the advancement of science and technology. It tells us that freedom should be our first priority in life, along with the accompanying systems of justice and law and order. Everything else we can take care of ourselves. We want our governments to stay away from us as much as possible for they harm us badly each time they try to help us.

The book sends higher education and science bureaucrats packing! They won’t like it one bit. Indeed, the collectivists, mercantilists, and statists in our midst (most ‘intellectuals’ fall in one or other of these categories) will resist the message of this book and keep harping on the need for government funding of higher education and R&D for apparently that is the only way to foster innovation. But Kealey shows that innovation has overwhelmingly come through privately funded initiatives. Indeed, wherever the government supports higher education and research, expect it to damage all prospects of innovation.

Sadly (and as expected), many modern economists with fancy toolkits but with little understanding of business, science, or society have fared rather poorly. But the book vindicates some of my favourite economists: Adam Smith, Joseph Schumpeter, Armen Alchian, von Neumann, and Robert Axelrod, among others. The book has also reminded me that I should try to read up more on Thornstein Veblen when I get some time: a person much neglected today. Also William Baumol and a few other modern economists. Unfortunately, one simply doesn’t have the time to read everyone.

What was really surprising, though (and this is simply an aside; nothing to do with the book’s main theme), was my discovery that Keynes once thought that The Origin of the Species is ‘economics couched in scientific language’ (p.361). That is quite startling, for it implies that Keynes possibly had a broader, evolutionary view of society and understood the nature of competition and spontaneous order – but that view doesn’t seem to come through in his rather statist General Theory that demands collectivist intereference in our freedoms by the state.

Either way, the classical liberals have been strongly vindicated. Most mind blowing (as far as I am concerned) in the book was the vindication of Thomas Jefferson’s famous belief that ideas should be free. As he had said, “He who receives an idea from me without lessening me, as he who lights his candle at mine receives light without darkening me.” Kealey confirms that Jefferson was right and that governments should not issue patents (except in the pharmaceuticals industry) for issuing patents almost invariably harms innovation and significantly reduces wealth – including the wealth of patent holders themselves! Even patent holders are far better off by using their findings commercially and letting competitors try to improve things: that triggers further innovation rapidly and yields the highest profits for everyone.

This book strongly reinforces the purely market-based model for university education (supported by loans from government for students) that I have advocated in Breaking Free of Nehru. In particular, for the Freedom Team of India, my message would be: we shouldn’t advocate government funding for universities in India. Let the market work out what it needs, including the science it needs. Much material from this brilliant book will now find its way into my second book, The Discovery of Freedom in the coming weeks. It supports everything I have been saying. No wonder I like it so much!

A brilliant piece of work! STRONGLY recommended!

ADDENDUM

Excellent article by Peter Roberts in AFR 21 October 2010, p.68, “Funding’s role in science”

From catalaxy files

Terence Kealey on the economics of scientific research

A summary of the book appeared in a series of posts on the Cat a few years ago and this is theconsolidated summaries.
A few extracts to give the flavour.
Chapter 5. The Agricultural Revolution.
The area of innovation shifted to Holland and England. Vital innovations such as crop rotation and systematic improvement of crops and pastures were driven by gentleman farmers such as “Turnip” Townsend and associations such as the Lunar Society which consisted of a mix of scientists, engineers and industrialists. By 1850 agricultural productivity in Britain was increasing by 0.5% per annum, unprecedented in history. Laissez faire ruled (almost) and there was no state involvement in research or industry policy.
Chapter 6. The Industrial Revolution.
Between 1780 and 1860 the population of Britain tripled from 7.5M to 23M and the real per capita income double in real terms across all classes.
The drivers were increased productivity of machines and the movement of labour from the land (and Ireland) to the factories. The driver of machine technology was NOT science as predicted by the Bacon but the improvement of existing technology by ingenious artisans such as Newcomen, Watt, Trevithic and Stephenson. Amazingly, the scientists were struggling to keep up with the tradesmen! Hooke (the scientist) told Newcomen that his idea would not work while he was developing it (fortunately he persisted) and Carnot’s work on thermodynamics was prompted by Watt’s steam engine which could not work according to the laws of science as they were understood by leading scientists at the time.
France followed the Bacon model and set up glittering science laboratories and institutions of learning, while the state ran on the basis of taxes extorted by an army of Farmers-General (tax farmers) working on a commission basis with draconian powers of search, detention and confiscation. Hence the Revolution, while the science laboratories produced scientific advances without any impact on technology or the wealth of the French people.
Chapter 7. Economic History since 1870
This chapter is about the comparative economic performance of nations with some warnings about the valid and invalid comparisons that are often made. Invalid comparisons are often used to promote the Baconian approach to science with the aim of getting more state involvement by way of industry policy and public spending on science and education. A classic example is the comparison of Germany and Britain post 1870. Bismark’s warfare/welfare state sudsidised and protected local industries, especially steel. With the inflated cost of German steel it made sense for England to produce less and buy from Germany, still a lot of people just saw the decline of an industry, not wealth transfer from Germans to Britons. They also misread the play on technical education, being over-impressed by the network of state-funded technical colleges in Germany and forgetting about the 700+ industry-funded mechanics institutes that were established in Britain between 1820 and 1850.
There is a stunning table on the economic performance of the current (1980) 16 richest nations from 1870 to 1980. These figures indicate GDP per capita in 1870 adjusted to the $US in 1970.
Australia at 1393 leads the UK 972, Belgium 925, Holland 831, Switzerland 786, US 764.
On an index of productivity Australia scored 1.3 compared with UK 0.8, Holland US and Belgium 0.7. Australia was at the bottom in growth of productivity since that time.
Chapter 8. Science Policies of the Twentieth Century
In this chapter Kealey traced the evolution of science policy in the US and Britain. They both started with a substantially laissez faire economy and also minimal state involvement in science, then during the 20th century the Baconians and the Czars of science took over and they went for central funding and control in a big way. For those who have been receptive to Kealey’s argument thus far, the results are predictable (cw 18th century France).
Chapter 10. The Real Economics of Research
In this chapter Kealey looks at the economics of R&D and then the economics of academic science, in each case asking whether government funding is required to optimise spending.
He confirms three Laws of Funding for Civil R&D.
First Law. The % of national GDP spent increases with national DGP per capita.
Second Law. Public and private funding displace each other (compete). So public funds tend to displace private funds.
Third Law. The public/private displacement is not equal. Public funds displace a larger volume of private funds than the public input. (net loss).
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Amitabh Bachchan's baseless generalisation about Australia

Continuing on my previous blog post on a similar subject (which I don't want to clutter with other things) two things become clear:

a) The media in India has vastly over-reacted. While SMK may not have called these recent assaults 'racist', the media very clearly has, and continues to do so. E.g. "Bollywood superstar Amitabh Bachchan has reacted to racial attacks on Indian students in Australia by rejecting an honorary doctorate offered to him by an Australian university." (see Express India, 30 May 09)

b) Amitabh Bachchan has generalised without basis re: the entire country. "I mean no disrespect to the Institution that honours me, but under the present circumstances, where citizens of my own country are subjected to such acts of inhuman horror, my conscience does not permit me to accept this decoration from a country that perpetrates such indignity to my fellow countrymen." (same article above).

Mr Bachchan, I respect your work but I think you've misconstrued the situation pretty badly. Do not libel an entire nation. It is not Australia (nor Australians as a whole!) but a few stupid louts who have attacked a few Indians. Crime happens. Others too get attacked. Please check out the crime scene in Melbourne. It is not crime free! It is broadly safe, but not crime free.

It is REALLY bad logic to generalise from incidents which are likely ordinary crimes, to the entire country. I urge you to take back your decision and ask your advisers for evidence that there has been a disproportionate harm inflicted by goons and criminals in Australia on people of Indian appearance. Don't listen to the Indian media and TV. These guys are out of their mind!

Sanjeev Sabhlok
31 May 2009

PS. Australia has dramatically reduced its levels of racism over the past 30 years. But crime is a different matter.

Thus, out of the roughly 90,000 Indian students in Australia, some will inevitably get caught in crime. The only proof of these incidents being caused by an increase in racism (or being motivated purely by racism) will be to demonstrate statistically that the crime rate experienced by people of Indian origin in Australia is HIGHER than that experienced by the rest of the Australian population, after controlling for place of residence or work. Indian students tend to live in high risk and high crime areas and work late night and return back by public transport, walking on empty streets, or driving taxis that collect all kinds of weirdos, drunkards, and drug addicts at late night. For someone with that residence and work profile, I don't think Indian students are experiencing a particularly higher crime rate, ie. the are not being discriminated by the louts and criminals of Melbourne. But I'm not the expert on this and will leave it to the Police to investigate and tell the people what is going on.

PS 2 (added on 2 June 2009). A sensible article in The Agetoday
http://www.theage.com.au/opinion/dont-believe-the-media-hype-racism-is-often-a-twoway-street-20090601-bsto.html?page=-1

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