Why Should Location Matter?
Suresh Venkatasubramanian of The Geomblog writes in to me and, as a tangential aside to another discussion, says:
I’d make the claim that the libertarian point of view makes far more sense in India [than in the USA], where we’ve had 60 years of a paternalistic socialistic regime and desperately need a free-market swing, and makes less sense in the far more free-market oriented system prevalent in the US, where we’ve seen both the excesses of government and rampant private entities.
Ultimately, the libertarian argument that I most agree with is about the dangers of accretion of power. Where I differ from economic libertarianism is my belief that there is a role for government to bring up those whom the vagaries of the free market leaves behind.
I’m not sure what Suresh means by “rampant private entities” and “vagaries of the free market,” but it’s an interesting point that he makes. What do you feel about it? Comments are open.
You need to balance the marketplace with the needs of society. There’s a lot of things the market does well, and a lot it does badly. Let loose, the markets are more or less guaranteed to reward the lucky and punish the unlucky: you need some intervention to rebalance things in favour of the unlucky or you end up with massive economic power in the hands of a small group of people, which. A rising tide does not raise all boats, as we’ve seen this week in New Orleans.
Over-regulation is a bad thing as well, and I suspect India suffers from that. Going to the opposite extreme will not help.
Comment by Colman — September 5, 2005 @ 10:30 am
Colman has already stolen my thunder :), by enunciating the key point I wanted to make: balance.
To me, the market represents the most efficient mechanism for the distribution of goods, services, and priced entities in general. The idea of a market-driven system therefore is that once prices settle at the cheapest possible price, as they should in an efficient system, all benefit. But the market is mindless (”vagaries of the free market”), and is not optimized for the “rising tide”, i.e maximizing the quality of life of the lower percentiles of the population.
As regards “rampant private entities”, this goes back to my point about power. Although the market creates efficiencies by distribution, it does not prevent inefficiencies via monopolistic behaviour, cartels, etc. Thus, even in private enterprise, aggregation of power leads to bureacracies and inefficiency. I think I might have got carried away with my use of the word ‘rampant’ (I forgot to turn off my anti-corporation screed spigot :)). What I should have said is that large private entities (Haliburton and its subsidiary KBR are one example) can be as inefficient, wasteful and bureacracy prone (the US healthcare system) as any government entity, and thus a blind faith in private enterprise (which I do not accuse libertarians of having) is misplaced.
It feels like a cop-out to say that it’s all about balance, but it really is. The job of the free market is to distribute wealth and capital as efficiently as possible, and in my mind the role of the government is to ameliorate the inevitable inequalities brought about by the free market system.
So why should location matter ? because of where you start from. India desperately needs a good dose of libertarian thought, because years and years of centralization and the abuse of power have corrupted our psyche in the form of the ‘mai-baap’ culture. But in the US right now, what is preventing a proper examination of the levels of poverty in the country, and what might be done about it, is the strong individualistic streak, and the central myth (so eloquently expressed by Maria Farrell at Crooked Timber) that everyone should be able to pull themselves up by their own bootstraps, a notion that precludes any kind of government intervention to help those who need it.
Comment by Suresh — September 5, 2005 @ 12:19 pm
Just to jump in myself, what a libertarian POV fails to take into account is that market failures happen (public health, primary education etc), and they happen all the time when spillovers cannot be appropriated by private entities. The only entity that can deal with these market failures IMHO, is the government.
That said, a libertarian school of thought is vital for a country like India, which has spent too much time way out left, so anything that restores balance and pulls the polity towards the centre is to be welcomed.
Comment by Reuben Abraham — September 5, 2005 @ 2:39 pm
‘there is a role for government to bring up those whom the vagaries of the free
market leaves behind.’
that’s the usual pretext under which governments start expanding their role. after government x tries its best to bring up ,say, those whom the vagaries of the free market left behind it’d find, amazingly there are still more people to be brought up. and the bringing up goes on.
shouldn’t even the bringing up be left to the markets/society at large rather than governments which, we all agree, are very inefficient in this kind of thing?
Comment by kuffir — September 5, 2005 @ 3:10 pm
But it is not the role of the markets to bring anyone up. The market is a means for distributing and generating capital. If we agree (and it is by no means obvious that we should) that it is important to bring up those that have fallen behind, then the mechanisms must be external to the free market (not in opposition necessarily, though). That leaves society as the other choice, which I infer to mean private philanthropy or charity.
But in many ways, government (even limited government) is the result of a common desire of a society to manage its affairs, and those powers are ascribed to government that society believes are of value to the community but are not easy to perform via for-profit private enterprise. Thus, agreeing on the value of a safety net, why should we not enable government to be the active agent ?
Comment by Suresh — September 5, 2005 @ 4:30 pm
It is true that a blind faith in market enterprises is not the prudent way forward at all. I have often heard free-market advocates, defending the “poor getting poorer” syndrome in India, despite reforms, by presenting the trickle-down effect argument. They say that since socialism was accepted for over fifty years, at least the same kind of time frame should be accorded to a free-market system. But the simple question to ask is Why. Why should a system that is not benefitting a vast majority now be allowed to continue, even if it is “just” five years? What if it fails after five years? Another ism to adopt? Another debate and may be a roll-back to socialism?
What is actually needed is for the government to take a very active and responsible regulatory role in non-critical sectors and be wholly responsible for areas of critical importance such as education and healthcare. When I say regulations, I mean regulations that are relevant, non-archaic and sensible. These entities should also be vested with sufficient powers, unlike something like the TRAI.
Comment by Shreyas — September 6, 2005 @ 3:47 am
Shreyas says
What is actually needed is for the government to take a very active and responsible regulatory role in non-critical sectors and be wholly responsible for areas of critical importance such as education and healthcare. When I say regulations, I mean regulations that are relevant, non-archaic and sensible. These entities should also be vested with sufficient powers, unlike something like the TRAI
Ironically enough, Shreyas is (unintentionally?) echoing the “planners” of the Indian economy from the 1950s and 1960s. And we know where that led us
Comment by Prashant Kothari — September 6, 2005 @ 9:43 am
How does one does strike that right ‘balance’, keeping all sensitivities in mind ? This is what Leslie Thurow, the New yorker columnist had to say in his book, “Fortune favors the bold”. He said it, referring to ‘globalisation’ and how it is perceived differently by different sections of society. But it is equally valid to this debate.
“… it is important to understand that the economic Tower of Babel looks different depending upon where you stand. The rich and successful at the top of the tower see something quite different than do the poor just starting to climb the stairs at the bottom. Those standing far away, outside of the global economy, see a tower with very different contours than what are seen by those working inside the tower. Not surprisingly, the economically, militarily, and the politically large and powerful fear the construction of the tower much less than do those who are small and weak.
It is not that one of these perspectives is right and the others are wrong. Each focuses on different elements of the tower. All reflect some aspects of the truth. No one can have all these perspectives simultaneously because on one can see the entire tower or the entire truth. That is why those who are rich and successful, large and powerful, and inside the building of the tower have to listen to the views of those who are poor, unsuccessful, small, powerless, and outside of the global economy. The first group cannot see what the second group sees, but the first group can listen to what the second group has to say. ”
For 60 years, India has vigorously pursued socialistic policies and we must start believing that we now have the bedrock on which to construct further and allow market forces to play it out, with Govt being a facilitator and not a regulator.
Comment by plus ultra — September 6, 2005 @ 1:42 pm
Oops, the name is Lester Thurow and not Leslie Thurow.. And he doesn’t write for the New Yorker. He is an Economics columnist for ‘The USA today’. Sorry
Comment by plus ultra — September 6, 2005 @ 1:52 pm
I would like to know from the various people who commented and asked for “balance” (who I would take the liberty of likening to people I know who go “free markets are fine, but you have to draw the line somewhere”) - where do you draw the line with the balance? Once you treat one special interest group differently in order to achieve “balance”, is that not only opening the floodgates to full blown regulation?
I would also like to ask people who speak of those who “get left behind” in a market economy, if they have ever considered the power of the (perhaps unintentional) altruism of markets? I have belief in a simple principle: In a free market, every person is a potential trade partner for every other person…inevitably it is in the interest of every person to ensure that every other person does well….sounds utopian, but not all that inconceivable to me. I was just watching an interview with Mr. K V Kamath of ICICI on CNBC..and he spoke of ICICI’s new business focus on “rural finance”….he sees an excellent untapped market in micro-finance in India. This sounds like an excellent illustration to me of how a so-called “evil profit-motive” for one party can be in fact “altruistic”.
WIll market-driven altruism not be the most efficient and effective?
Comment by sumeet — September 6, 2005 @ 2:08 pm
my point: strip the government of the extra functions it performs (or misperforms) apart from ‘managing the affairs of society’ in the name of protecting the weak. would saving the government’s busines ventures (adventures, more rightly),as the left would have us believe, in any way increase the incomes of the poor migrating in thousands from perenially drought-ridden mahbubnagar for instance? when the left says save the poor from the ruthlessness of the market it means save the babus’ provident fund savings from the stock market.
stripped of this mantle of sanctimonious concern for the poor( and of its extra functions) the government can be held more clearly accountable for its actions and failings in areas that should truly be its concern- education and health for instance. until then, no government would always prove to be that slippery entity that can never truly be pinned down to any straight answers in our ill-conceived democracy.
Comment by kuffir — September 6, 2005 @ 3:44 pm
‘..no government would always prove to be that slippery entity that can never truly be pinned down to any straight answers in our ill-conceived democracy’
no government should be read as the government.
Comment by kuffir — September 6, 2005 @ 3:46 pm
The “line drawers” somehow assume that the Govt. is the people and vice versa.
My question : why should I hand over my judgement by voting it away?
Comment by Nilu — September 6, 2005 @ 8:32 pm
The debate shows the impact of the decades of socialist mis-education and mis-information on the educated Indian mind. “Critical areas like healthcare and education should be entirely committed
to govt”?. While it is precisely the critical areas that the govt should clearoff completely.
Middleclass India does a good job of taking care of its health and school education (School education would be a great lot cheaper not for the fact that the private schools need to pay a lot in
bribes to the Education Departments in order to be recoginised).
Comment by Vishal — September 6, 2005 @ 11:55 pm
In reference to Sumeet’s comments, as far as I know, even Adam Smith didn’t think that a market can survive without any kind of regulation. Indeed, the oligarchy that formed in post-Soviet Russia shows the perils of a completely unchecked market system that is ripe for abuse. It’s not true that the only two choices are a totally free market or a completely regulated system.
As regards those who are left behind, I see nothing in the actual practice of the market that encourages either altruism or the common good. Indeed, market forces are derived off individual desire for self-improvement, which is A VERY GOOD THING, but does not lead at all the benefit of large numbers.
Look, overall it seems to me that capitalism and the free market have won the ideological argument over the appropriate means for distribution of capital, and I think that’s perfectly fine. But for civilization to have any meaning more than a brutal survival of the fittest, there must be some way of catching those who fall behind, often through no fault of their own.
Comment by Suresh — September 7, 2005 @ 12:48 am
I didn’t mean to do a hit and run comment at the beginning: the RSS feed for the comments just came back to life for me, and I couldn’t remember which site it was in the meantime!
Anyway, the point about balance is that it’s a dynamic thing: I can’t say where to draw the line. I don’t expect us to solve the problems of any economy for all time. There will always be new problems. We have to decide where to draw the line using our best judgement. That’s what deliberative democracy is for. I’m afraid that there are no easy answers, no simple solutions.
Unfettered capitalism (as if it existed anywhere) is guaranteed to overwhelmingly favour those who start off rich and well-connected. That’s just the way of it. There was a reason that Europe and the US introduced worker protections and redistributive measures: the free market was creating unacceptable conditions for the masses. If you value fairness and democracy you must ensure that the market serves the interests of society. It is a good servant but a very poor master. If, on the other hand, you are simply interested in justifying selfishness as a virtue, then you can believe in the myth of the invisible hand.
Comment by Colman — September 7, 2005 @ 4:16 pm
There is no dispute or debate that socialism of any sort should be the way forward. I definitely do not echo the thoughts of the defensive and insecure planners of the 50s. I just believe a free-market regime in its very simplistic form that advocates a total absence of regulation is actually not going to be successful. If it was, why is there no nation or economy in the world that has zero unemployment rates or a totally effective healthcare system?
Regulation seems to be a taboo world in the current media forms - be it the heavily liberatarian-leaning blogs, or the equally libertarian b-school graduates or the tabloids. I, once again, stress that regulation does not mean a government that interferes and regressively holds back attempts to progress. Also, regulations to check monopolies or the lack thereof are not the ones I am advocating. A government’s job, ultimately, is to lend a voice to the ones who cannot be heard, unlike each one of us commenting here from our plush seats. And that is what the government should do. Whenever any entity is crossing the ethical line or the humanitarian line, that is where it should step in. Please do not say that corporations, by themselves, are morally and ethically aligned to provide the best for the society. For every Gates Foundation there is an Enron or a Worldcom. I would, in fact, use the term positive interference than regulation to define what I am saying.
Comment by Shreyas — September 8, 2005 @ 8:53 am
The biggest fallacy with the government lovers or ’selfish-entrepreneur’ haters is the assumption that the government acts in the nation’s best interest. In fact the government is not even one entity but a conglomeration of inefficient money wasting centers, without a unified corporate goal.
I’m very curious why people think someone without sufficient incentive to benefit the poorer sections of society (i.e. government official) would endeavor to do something for those ‘fallen behind’ more than a private party.
IMHO the biggest false notion we have is that socialism helps the poor. Capitalism is probably the most efficient equalizer in society.
Comment by Abhi — September 8, 2005 @ 2:52 pm
Plus the fact that our politicians are potential if not actual mass murderers.
All the big massacres (Delhi 1984, Bombay 1993, Gujarat 2002) were planned and executed
by the Govt.
Another Fallacy (that even liberals fall to): Maoists/Naxalites are pro-poor.
A Free economy is esp. important for a multi-ethnic society like us.
A socialist/intervenist setup in a multi-ethnic society (esp with an electoral democracy) soon degenreates into tribal warfare as each tribe/caste seeks to obtain economic goods via State power.
A free economy distributes goods much more peacefully.
Note: We all dont get to sit on plush seats. Eg I only get to sit on a plain cane chair all day.
Comment by Vishal — September 9, 2005 @ 12:18 am
Apropos “plush seats”…I don’t want to repeat an earlier argument, but will just ask why exactly the “government” (even assuming it is a homogenous body of do-gooders) should be considered better qualified to sit in plush seats in the capital and dispense social justice than the sum of individual self-interests. “Plush seats” a.k.a. “kursi” would be exactly what interests people interested in running the government anyway.
And in response to those who advocate “a little bit of” or “prudent” regulation, I still think it is hard to reach a consensus as to what is “prudent”. What is benevolent regulation to one party would be intervention to another. Besides, leaving the state to make this “prudent” judgement on how much regulation in what sector is beneficial to which part of society vests too much discretionary power in one place, and would be a sure recipe for corruption…..something we already see everyday…devoid of the powers vested in politics and bureaucracy, there would be not much reason (incentive) to bribe anyone.
The altruism of the capitalist is purely “unintentional”, the altruism of the socialist is condescending, and since it is a mechanism of doling out favours, also prone to corruption and exploitation.
Comment by sumeet — September 9, 2005 @ 1:10 am
In some ways, a country like Somalia fits the libertarian-anarchist ideal, because there really is no government at all there. I remember talking to some private sector players from Somalia back in 2001. The mobile phone sector was flourishing with about 4-5 operators taking advantage of open market conditions. The trouble was that in the absence of regulation regarding interconnection of networks, none of the operators would interconnect with the other, which meant that businessmesn in Somalia, for instance, had to keep 4-5 phones with them. So, if you wanted to call someone on network X, you had to use the red phone and to call someone on network Y, you had to use the blue phone.
I think those of us who grew up in India under the socialist Raj have an instinctive dislike of regulation of any sort. However, for capitalism to work optimally, regulation is absolutely necessary. Adam Smith knew this and talked about it. I did my own research on the impact of mobile phones on rural markets in India (and elsewhere), and while the phones have had some impact on the poor, it could do a *great* deal more if the institutional mechanisms were stronger at the lower end of the income spectrum. Trust me, the brutality of unregulated, Darwinian capitalism that you see in rural India will lead you to very quickly question your assumptions about regulation and the need for it.
As for the question of how much regulation is required, that’s very tricky since it’s a very subjective measure. All I can say is that regulation ought to be enabling in nature, i.e. it enables capitalism to function properly.
Comment by Reuben Abraham — September 9, 2005 @ 11:29 am
Rural india is hardly a free market society. Even your land is liable to be redistributed to
a member of an official victim group.Govt intervention runs huge at all scales. Infact it shows clear features of what happens under a Socialist regime.
Comment by Vishal — September 12, 2005 @ 12:04 am
Regulation *may* be necessary (not ‘is’ but ‘may’ depending on whose interests are being serverd). Then again who’s to say that governments need to chip in the regulation??
Self-regulation or cooperation is the right kind of regulation. In the Somali example, I wonder why the different cell phone didn’t interconnect, against their own commercial interest! I’m pretty sure too, there are strong political reasons why that happened and not commercial reasons.
When so many technologies have evolved without (and in spite of) any government’s interfernce (bluetooth etc), why on earth do we need a government official telling us what to do or not?
Who needs regulation, when we can cooperate & make ’standards’?
I know why, all those socialists start screaming ‘collusion’, that’s why!
Comment by Abhi — September 12, 2005 @ 2:57 pm
Actually, they didn’t inter-connect because of purely commercial reasons, namely the possibility of charging monopoly rents.
Comment by Reuben Abraham — September 13, 2005 @ 1:23 am
(regarding comment by Reuben)
That doesn’t make sense. Because if they’re all interested in monopoly pricing, all consumers will flock to the largest monopoly. All it would take is for 2 of them to cooperate and that’ll blow the rest out of the water.
I’m sure there is some kind of restriction.
And again, in ANY case, if the cell phone companies themselves don’t seek interconnectivity, why should someone in government FORCE it? I differ on your fundamental assumption that the government or for that matter any layman knows the business better than the businessmen themselves.
Comment by Abhi — September 13, 2005 @ 10:06 am