THE GREEKS HAVE TAKEN TO THE STREETS again in violent protest against narrowly approved austerity measures cutting public employment, pensions and the social safety net. The Americans have returned to partisan squabbling over budgets (economic stimulus or dangerous deficit?), education and health care (big government or investing in people?), and social safety nets (a helping hand or a motive for sloth?) after the Presidential election clarified almost nothing. The world has started to murmur again about climate change—the “greatest and most wide-ranging market failure ever seen” in the words of the 2006 Stern Review of the Economics of Climate Change—even as the 2012 Doha Climate Change Conference (the 18th round of global negotiations on how to respond to this failure), from 26 November to 7 December, thrashes it out.
There is that old saying that “Democracy is the worst system except for all of the rest.” It’s beginning to look like markets might be that way too. Systems for bartering, buying and selling are undeniably powerful forces for motivating innovation, matching goods and services to those who want them, and invisibly aggregating the voices of many into some kind of collective statement of preference. But the market only works for things that can be seen, measured, verified and shared. It is also selectively deaf: it hears only the ‘voice’ of purchasing power, not of need or want. By itself, it neither rewards nor penalises externalities, the social side-effects of production and consumption. Air polluters don’t pay for emissions unless governments mandate it; those who invest in vaccinating their children will never be paid back by the parents of the other children who become that much less likely to encounter an infected classmate. The market’s main force—competition—relies mainly on open, impersonal access to the infrastructure of production, and labour market opportunities to produce.
Public economics has long been preoccupied with how and when states should step in to herd market forces when these conditions do not hold, but the academic discussions have taken on an increasingly intense political life. The principle of the state role in markets has come up for discussion as economic volatility has increased. The practice of policies that inevitably create winners and losers has attracted scrutiny as inequality has risen.
The United States, the poster country for extreme capitalism, is openly reconsidering its trajectory. American public intellectuals increasingly dwell on the consequences of the country’s devotion to markets. Nobel Prize winner in Economics, Michael Spence, broke the ice in a Foreign Affairs article (July/August 2011) asking whether focusing on efficient production, often at the cost of employment, was really worth the loss of the social ties that come with a more equitable and collaborative society. Michael Sandel, a leading political philosopher and famed professor of Harvard’s core course ‘Justice’, argues in his new book What Money Can’t Buy: The Moral Limits of Markets, that the act of buying and selling corrodes other valuable forms of social interaction. He doesn’t offer an antidote and he acknowledges the friction between calls for community values and the liberal emphasis on individual freedom unfettered by community choice, but he opens the door for something more than markets. Paul Volcker, former Chairman of the Federal Reserve, made a similar point in a recent interview in Newsweek (17 September 2012) when he said, talking about the banking sector, that he was struck by the number of not just friends but other observers who share the belief that there has been a real change in the mental approach of people in markets. They used to be more customer-oriented, with some sense of fiduciary responsibility that’s been very much reduced into an impersonal, ‘you’re a counterparty, you’re not a customer’ caveat emptor.
This year’s presidential election debates centered on financial regulation, tax structure and health insurance as focal points in a larger debate about the role of the state in America’s development and Americans’ wellbeing.
The practice of free market capitalism in the United States has come under as much scrutiny as the principle. The market appears to have captured the state as policies have increasingly favoured the richest Americans, and public investment in educational, public health, and infrastructure systems that could equalise opportunities has declined. The angst has moved from academic analysis to the annals of popular magazines: Nobel Prize winner Joseph Stiglitz calls it democracy “Of the 1%, for the 1%, and by the 1%,” in Vanity Fair (May 2011). New Yorker author and public commentator George Packer’s article in Foreign Affairs (October 2011), ‘The Broken Contract: Inequality and American Decline’ was published in an issue with the provocative cover headline, “Is America Over?” The New York Times columnist Eduardo Porter pointed out in his 30 October 2012 column that “many of us have come to doubt the United States’ national self-image as a society that offers a shot at prosperity to all”. The “submerged state”, as Cornell professor Suzanne Mettler calls America’s combination of subsidies, tax breaks, welfare programs and other easy-to-overlook state tinkering with the market, is starting to stick out.
Across the Atlantic, and on the other side of the capitalist spectrum, the European Union and the countries it comprises are struggling with how much of the subsidy regime, social safety net, and public investment programmes they can afford to keep as part of their historical social commitment to reshape and offset some of the outcomes of the pure pursuit of global profit. France, in keeping with its historical commitment to the finer things in life, has taken the lead in redefining the benchmarks for national progress by holding the market-state combine to a new set of standards. The proposals made by the Commission on the Measurement of Economic Performance and Social Progress, convened by the French government in 2008, reset the goalposts for development, implicity calling for more active herding of the (financially denominated) market.
Much of the rest of the world is finding their balance between buying and selling and regulating and taxing as the Washington Consensus fades into history. The term was coined by economist John Williamson in 1989 to describe the typical policy advice from Washington-based development institutions—focus solely on property rights and otherwise liberalise, privatise, deregulate, downsize and get out of the way of market forces. That approach has had mixed results in terms of growth, let alone broader definitions of development.
Needless to say, India is no stranger to these discussions about how much the state should herd market forces towards growth. The roles and capacities of markets and states have been thoroughly contested in many fora: the shifting political winds on agricultural markets, the public distribution system, and food security; the academic spats about when growth accelerated (was it in the 1980s or 1990s?); and the op-eds’ differing reading of data on employment, poverty, and inequality as liberalisation progresses.
We’ve moved on to more specific concerns about the interface of market and state. In principle, the state has fired many of its shepherds, dismantled many of the fences, and let the flock roam over an increasingly free range since 1991. In practice, it is increasingly clear that some of the sheep were directed to especially favourable territory, and some of the shepherds became bouncers and bodyguards to protect these enclaves. Today’s headlines concerning the functioning of private enterprise are often about project-level investigation—scrutiny of how state actors have shaped opportunities for such enterprises—rather than the broader question of the ideal relationship between public policy and private market exchange in the process of development. Broader debates on the subject—on passage of laws, development of regulation, and general boundaries on market exchange—are on hold.
ENTER GURCHARAN DAS, champion of the free market and author of international bestseller India Unbound: From Independence to the Global Information Age (2000), a celebration of India’s American turn. Das, a former senior executive with Procter & Gamble and now a full time writer and public intellectual with several other books to his credit, is well known for his admiration of India’s entrepreneurial spirit and disdain for the government policies that constrain it.
Das’s new book on private enterprise and public policies, India Grows at Night: A Liberal Case for a Strong State, unabashedly ignores the media furore about specific market and state interactions to speak to the broader questions about the role of the two. India Grows at Night is one of the few places where one can still read about the highlights of public-private enterprise without encountering the lowlights. About the Jaipur-Kishangarh Expressway built in 2012, for instance, Das writes that “the key to the success of this public-private partnership lay in transparent contracts ... such contracts had helped create a level of trust and enabled [India] to access funds, skills, and technologies from the best companies in the world”. The book does not mention the Comptroller and Auditor General’s (CAG) criticism in 2008 that the road concession period was excessively long (resulting in higher returns for the developer) and that the road only met “acceptable” (not “desirable”) quality standards. The book refers to the Delhi airport as an example of a successful engagement of the private sector to bail out an inept state, without mentioning the cost overruns or the post-contract increase in development fees. Das’s discussion of Gurgaon, as an example of how far private initiative can go when the state is not looking over its shoulder, sweeps aside the critical and often criticised role of particular public officials in enabling private developers to aggregate land and secure development rights.
Das’s unwavering faith in the efficacy of private enterprise, unaccompanied by a discussion of the mixed ramifications of the public-private encounter as it has played out in India, almost turns the term “grows at night” into a double entendre. Das means “grows at night when the state sleeps”; others may assume “grows at night under the darkness of backroom deals”. Prabhu Chawla, editor of the New Indian Express, for example, wrote in The Sunday Standard (14 October 2012) of public-private partnerships as opportunities for those who want to
avoid public scrutiny of their projects. Under this model, the government provides massive amounts of money and even land to private individuals to construct roads, hospitals, airports, and toll roads. These projects are built and operated by private entities over which government has no control. Most toll roads are symbols of massive corruption and mismanagement, but they have been kept out of the ambit of the RTI Act.
Das’s unqualified adulation for the private sector obscures the larger issues his book raises. Intellectually, this book is more of a successor to The Difficulty of Being Good: On the Subtle Art of Dharma (2009), Das’s foray into interpretation and explication of modern lessons from classical Sanskrit texts, than an heir to the market-venerating line of work. India Grows at Night makes three main points and offers one significant new twist for the global discussions on markets and states.
Das’s first point, that the current form of the Indian state is bad, builds on the familiar arguments about red tape, failed public goods provision, and selective administration of justice to add a fourth accusation: the state has created and reinforced bad habits, and has violated the best and strengthened the worst of India’s historic cultural legacy.
For one, the ‘weak’ state has failed to check the illiberal power of caste, religion and kinship in limiting peoples’ freedom: “While a solid society helped to check state power, a feeble state did not return the favour.” Today’s selective justice from the legal system and courts is just the latest manifestation of this capture of the state. Democracy before capitalism gave people a better sense of rights than duties: the absence of competition under the licence raj and during the era of state production “corrodes the citizen’s character” even more than competition does. Das traces corruption back to the easy money resulting from the ability of the gatekeepers to convert valueless signatures into valuable permissions under the licence raj. He argues that the centralisation of fiscal and therefore de facto authority in India has also had an opportunity cost for civic culture. “When people govern themselves [politically and more importantly fiscally] they begin to internalize the virtues needed to become good citizens.”
His second point, that while the current state is bad, it is possible for a state to be good, reiterates a fairly standard liberal vision for a paragon state: one that has strong authority for decisive action, a transparent and universally applied rule of law, and is accountable to the people. This is easy to describe in principle but contentious in practice:
A strong, liberal state is not an intrusive or meddling one, the sort that Indians experienced during the ‘licence raj.’ It has a light, invisible touch over its citizens lives and yet is tough on corruption. The trick is to strike the right balance. On the one hand, the raw power of the state must be domesticated to ensure that it will not confiscate private property and abuse the rights of its citizens; it will only use that power to protect property and human rights and provide public safety. On the other, the state must control its tendency to expand its activities and become inflated; it should only do what others—civil society or the market—cannot do. This is how a state becomes effective, legitimate, and accountable.
But under what circumstances is land acquisition a necessary part of the to-do list to support entrepreneurial development and the market, and when is it confiscation of private property? When humans’ senses of rights clash, which are the human rights to be protected? And what are the limits of civil society and the market’s ability to protect individuals’ opportunities and freedom? States continually make contestable ethical decisions, and the process of making these decisions is in some ways the distinctive ‘social’ aspect of a polity. This is an especially important fault-line to confront in India with its history of multiple allegiances to social and legal norms and its legacy of experimenting with the accommodation of specific social codes along with broader legal ones. Universal application of heterogeneous legal codes is distinct from selective application of universal codes. (For instance, the fact that Hindus, Christians, and Muslims legally fall under different sets of family laws in India is different from courts adjusting murder sentences based on the defendant’s religion.) The first one is openly known and expected, the second is surreptitious and arbitrary—but neither meets the liberal criteria Das holds for the ideal state.
Das’s third point is his main contribution to the milieu: the proposal of a new path for market-led development herded by something other than, or in addition to, inevitably flawed states. He argues that markets shape public character, cultivating a new class of citizens who expect and will demand a state that supports their ambition. The basic story for how we get from point A to point B, this state to that one, goes as follows: people have aspirations; to the extent that the state constrains their aspirations they will push for change. Urban citizens will join Anna Hazare and his successors; rural teenagers want to be like Bill Gates and will support anybody who helps them on this mission. By and large, with a little bit of nudging, politicians will catch on to what Das terms “the politics of aspiration” and this individual drive for market opportunities will snowball into accelerated social change, enabled, again, by the markets.
In short, if the state enables the market, the market will reshape society, and the weak state will become strong, in the sense of being compelled by public aspiration to push back on the illiberal aspects of the social order. It’s a counterpoint to American fears, a proposal that the market should in some ways take over the state. There is a fine line between political pressures driving policies that support ambition and preferential treatment that encourages the ambitions of a few, but the book argues that India’s cultural heritage of dharma, or at least a subset of the many concepts that go under its umbrella, could be the magic ingredient.
Das does not argue that this will happen—the book is part exposition of a possibility and part exhortation to all the characters to take their places for the drama—but the scenario offers a new twist regarding global angst about where markets are taking us. While the Western world wrings its hands about the loss of the moral on the way to the market, Das celebrates and promotes the discovery of a new version of an old moral compass, driven by and supportive of the market. It’s like a neo-liberal version of the hippie discovery of India’s ancient secrets. That edge of an individually-driven yet community-oriented moral order that Sandel wants, the whiff of a sense of duty that Volcker seeks—dharma has it. It’s a tempering force for markets and states alike; aligning them both in the service of development and freedom.
WHAT, THEN, IS DHARMA? The dharma described in this book is very clearly sadharana-dharma, a universal form that emphasises the cultivation of an ethical self, focuses on inner traits rather than external rituals, and applies equally to all castes. This renewed awareness of an ethical self is expected to create a sense of common cause in middle-class movements, to soften strict self-interest and direct this emerging economic force toward a new society that supports at least equality of opportunity. As proof of concept, Das describes the moral awakening of a group of middle-class friends who had been intent on their careers (which had gained them nice flats and cars and a comfortable life), but who were attracted to the Hazare movement because of “his belief in dharma-centred leadership” and felt that demands on government would be most effective if they came from “moral citizens”. More is needed—Das calls for the translation of “the liberal values of the Constitution into the language of sadharana dharma so that they become habits of the Indian heart”—but the seeds, he feels, seem to be there.
At other points in the book, dharma seems to spring less from an ethical sense as from strategic self-interest. Das describes dharma as “the underlying moral norms that promote trust and give people a sense of security when they cooperate in the marketplace” but the elaboration in Chapter 5, ‘The Dharma of Capitalism’ seems like an extended argument about the value of repeated interaction in small communities. (Everyone knows everyone else, so it’s difficult to cheat.) Das argues that competition and dharma are mutually reinforcing: a reputation for being honest is a competitive asset. The argument perhaps places too much faith in the power of one customer’s bad review of a mango seller: in this example, such a review will not only affect the seller’s ability to attract other customers, but affect her ability to generate trust with suppliers and employees too.
Dharma is also a code of conduct for the state and the individuals who staff it. It is “the duty of the ruler to protect the respective customs and laws” of a self-regulating social order, and a guide for the use of punishment—danda-niti—to strictly uphold the law. This is the point at which the book’s evasion of some of the tougher questions about the tension between personal freedom and social norms comes back to haunt the grand finale. If dharma means upholding social customs and laws (some of which may be specific to gender, religious groups, or other ascriptive identities), and liberalism and the paragon state requires universal treatment, which one wins if the laws are not universal? Das relies on the market to be deus ex machina in resolving this tension: markets will erode particular alternative (illiberal) social ordering. “Socially, hierarchy has continued to weaken; caste matters less in the modern, urban economy, although it remains a vigorous marker of political identity,” he writes. And “Caste hierarchy is waning as the demand for talent in the modern economy undermines traditional claims for status…the joint family is also fading with urbanization and mobility.” The changes set in motion by the ban on untouchability and the emphasis on universal suffrage, an outcome of that brief moment of strength the state demonstrated after Independence before dissolving into the dithering of trying to do it all, have paid off when accelerated by market openings, argues Das.
The Mahabharata’s Yudhishthira, quoted in The Difficulty of Being Good, himself points out that in seeking dharma “reason is of limited use for it is without foundation … the truth about dharma is hidden in a cave”. In the end, this may be the underlying point of the book: the social system for shaping both markets and states toward development begins with the individual enterprise of introspection.