Thursday, 1 August 2013

Progress Should Depend On Systems, Not Individuals

This post does not refer to India alone, although that's how I first thought about it. It's actually much more general and applies to any country at any time.

During a discussion on Facebook recently, one of my friends mentioned Narendra Modi, the Indian politician who looks likely to lead his party, the BJP, into the 2014 elections, and who quite probably will be India's next prime minister if the BJP wins.
[Update 13/09/2013: Narendra Modi has been officially named the BJP's prime ministerial candidate for the 2014 election.]

The comment was very interesting, because it offered a different viewpoint from what one normally hears.

I am not a BJP supporter per se. I am a Narendra Modi supporter, and that too because he is a capitalist. I am of the firm opinion [...] that India needs a strong dose of free-market capitalism, and if Modi does not come to power I don't know if anyone will administer the dose. I don't think anyone else has the vision, and I think it is DESPERATELY needed in India. I'd place that above all other priorities for India. To me, the BJP is a vehicle for NaMo to assume power. [...] he can do it. And he will. [...] in my opinion, Modi's economic policies are what India desperately needs.

Now, I share many of my friend's thoughts and ideas. I too believe India needs to unshackle itself from its innumerable rules and restrictions of socialistic vintage and embrace free-market capitalism. [By "free market", I mean neither crony capitalism (the unholy nexus between politicians and business interests) nor laissez-faire capitalism (the complete absence of regulation). My idea of a "free market" is a liquid, or highly competitive market. It is a market from which stifling bureacracy is eliminated but where antitrust legislation is aggressively enforced. See my blog entries on the economic philosophy I call "Liquidism".]

So I actually agreed wholeheartedly with my friend's comment on India's need for a strong dose of free-market capitalism.

However, I didn't agree with the corollary that Modi therefore deserved my support. Where I diverge from my friend's views are in two respects - the particular and the general.

In particular, I am convinced of the complicity of Mr Narendra Modi in the 2002 anti-Muslim riots in Gujarat. His protestations of innocence and inability to act fast enough are unconvincing. After all, this is the man with an image of hands-on governance, who is said to have shown his dynamism and administrative superpowers when he rescued Gujarati pilgrims who were stranded after floods in the state of Uttarakhand. If he had wanted to stop the riots, he would have done it. The fact that the riots went on for 4 days and resulted in the deaths of over 2000 people strongly suggests that the rioters had his full support. I do not believe that this man should be trusted with the reins of an entire country, when a life term would be more appropriate.

In general, I do not believe in placing the destiny of a country in the hands of a single individual, however capable and promising they may be. The process is fraught with danger. But if every other politician and political party is incapable of ushering in the slew of changes that India badly needs, to whom can we turn?

I'm actually sanguine about the answer. India's move to free-market capitalism is inevitable, although it may not start as early as 2014. It will come about because power has been steadily slipping away from the central government to the states over the last two to three decades, and the process shows no signs of abating. Coalition governments have been the norm since 1989. The names used in political discourse have moved away from those of parties in the 1980s (Congress, Janata Dal) to those of coalitions today (UPA, NDA). Regional parties have become kingmakers and begun to wield disproportionate power. The states have never been stronger vis-à-vis the centre. India today is much more federal than it was at its birth. Indeed, with the creation of smaller states from larger ones (3 in 2000, 1 more due in 2014) and the increasing demand for statehood from minority groups, it looks like India will before very long be a federation of many small and semi-autonomous states.

[From a professional standpoint too, I wholeheartedly approve of India changing from a monolithic polity with a strong centre to a loose federation of small and internally cohesive states. In the IT industry where I work, high cohesion with low coupling is an architectural principle that leads to highly robust and flexible systems. Centralised systems, in contrast, are brittle and costly to maintain.]

I see India becoming stronger and more dynamic with increasing federalism. Smaller states with more cohesive and engaged electorates tend to have governments that are more responsive and focused on delivery. This is not peculiar to India. People everywhere have begun to demand governance and punish governments that don't deliver. Islamist governments that came to power in the wake of the Arab Spring are discovering to their cost that ideology may win elections but does not guarantee lasting power. The people of Tunisia, Libya and Egypt have signalled strongly to their rulers that what they want is good governance, and Islamic ideology is not an acceptable substitute. In India too, the worm has turned. Electorates are no longer docile and can no longer be taken for granted by the elected.

This is why I believe India will inexorably turn to free-market capitalism. It cannot but. States are going to be competing ferociously with each other to attract foreign investment and talent. Their people will demand higher living standards and punish governments that don't deliver. How else can state governments meet such rising expectations? Heavy inflows of investment will be required, and governments will have to work very hard to attract such investment. Providing an environment that is friendly to business will be imperative, because corporations looking to invest in India can shop around looking for the state offering the most favourable terms. [An early foretaste of this inter-state competition was provided when homegrown corporation Tata Motors shifted from an unfriendly West Bengal to a welcoming Gujarat to establish a factory for the world's cheapest car, the Tata Nano.]

I also foresee radical changes to Indian labour law. I have long believed that a "hire and fire" environment, rather paradoxically, offers the best protection to workers by enabling a dynamic job market with plenty of opportunities, because employers don't hesitate to hire when they know they can shed staff at short notice. Labour "protection" laws have in fact stifled economies and reduced employment opportunities where they have been strongest (e.g., the long communist-dominated Kerala and West Bengal).

In sum, while I share my friend's dream for India to become a free-market economy, I do not believe this can only be achieved by one person, much less that that person is Mr Narendra Modi. I am confident that the vehicle for India's progress is India itself.

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