In recent years, there has been a
steady increase in the number of think tanks and academic institutions studying
public policy in India. These range from government funded bodies (like NITI
Aayog), private sector organizations (like Observer Research Foundation or Centre
for Policy Research) to international forums (like World Economic Forum, World Bank)
and policy schools in premier higher education institutions (Centre for Policy Studies
at IIT Bombay, School of Public Policy at IIT Delhi).
These indicate a divergence from
the previous dominance of the Civil Service, mainly through the Planning
Commission, in policy recommendation and analysis. While implementation was
seen as the key determinant of policy success or failure till 1990s, this has
given way to analysis of policy design, assumptions, forecasts and the very
objective of the policy. This has also resulted in both a politicization of
policy and the policy-fication of politics. In spite of the inchoate nature of
the process, policy debates still provide the core of ideas, justifications and
concepts – although more contentiously in a political environment where
achievement of power through ideological hegemony seems to be the predominant
goal. This articles discusses the direction of policy studies and its changing
relevance in current political context.
While Planning Commission in
India signified policy as a technocratic tool of an enlightened administration,
recent developments have taken an argumentative turn locating policy both as a
strategy servicing politicians and interest groups (politicization of policy)
and as a tool to structure and systematize the public debate between experts,
citizens and states (policy-fication of politics). The Commission in its latter
decades was criticized for its lack of political realism and introducing
political preferences under the guise of neutral procedures and technicalities
in pursuit of political objectives.
Although similar critiques can be
made of Niti Aayog, today’s broader policy debate recognizes human biases,
political motivations and power dynamics much more than it did in the past. Diverse
and emerging institutions of policy studies also reflect reduced relevance of
traditional political scientists in the power hierarchy of policy process. This
is signified by shift to a more technocratic approach that studies impact,
processes and content of public policy based on causation, falsification and
evidence. This seems to be a more causal approach that diagnoses problems,
conducts trials/experiments and predicts impacts of policy interventions. To
what end, is an open question. They may be just as political in the guise of
Moreover, there is an added
appreciation of action imperatives and political demands that policymakers
face, although sometimes it may be used to justify very bad but enthusiastic
policies. Policy studies today lie at the intersection of scientific
rationality as a means of solving collective problems and the socio-cultural
fragmentations that regard rationality as exclusionary, undemocratic and
incompatible with diversity, and hence fallible. To ameliorate this, policy
reports try to underline improvements and modification as important components
of policy, thus locating it in an iterative social context of public understanding,
dialogue and action.
At the same time, opening up of
the policy process has also lead to multiple cosy relationships among
politicians, administrators, analysts and commentators who have coherent views
on an issue. This generates pockets of influence with divergent political
framing systems, whose relevance changes with power dynamics. In fact, this is
a clear example of politicization of policy where any evidence is no more than
an argument to further an outcome.
In this context, policy studies
may be seen just as a systematic means to provide clever strategic shortcuts
and simplifications to decision-makers with only modest changes in their
knowledge, i.e. policy analysts are seen as just providing ammunition in a
rhetorical contest whose policy outcome has been decided by those in power.
Optimistically, this can also be viewed as a way for to forge common ground
between competing interests. However, this may also create a moral relativism
where reprehensible policies suddenly emerge as solutions from the supposed
consensus of participatory or electoral politics. It disregards the conditions for such a
political consensus, if it can be so called, resulting in political deception
and manipulated legitimation of forced consent.
One of the issues with this
argumentative turn in policy studies is the creation of counter-experts immune
to learning or reflection – ‘tribes of experts’ – who create ‘contradictory
certainties’ beyond comparison for politically persuasive audiences, which
reinforces polarization and leads to policy paralysis. Policy studies today is
caught between the practical demands of scientific analysis and the
increasingly tenuous practice of politics. It is in a dilemma between serving
either an active participatory, national citizenship, or a self-proclaimed,
enlightened, policy-making political élite (includes opposition) which is
This predicament also signifies a gradual decoupling of policy studies from its previous role in supporting government-initiatives, towards shaping debate on issues that have either skipped decision makers or which require more global agreements to emerge before a policy problem is even defined. While policy studies is an emerging field in Indian academia, it would be wise for its promoters and practitioners to recognize the direction they are treading on and reflect on the way forward. The fractured nature of modern politics can easily seep into policy studies, undermining the expertise of policy analysts and degrading the quality of policy-making.
Hoppe, R., “Policy analysis, science and politics: from ‘speaking truth to power’ to ‘making sense together’, Science and Public Policy, 26-3 (1999)
With increase in the prevalence and pervasiveness of networked industries in our lives, there is an increasingly involved debate on regulation of big technological companies. Both from the economic left and the right, there are voices that raise alarm about the size and scope that the firms in these industries are attaining. While some have suggested breaking up of these companies into smaller ones, others have advocated for wise regulation.
Despite the muddled nature of this debate, this much is clear: The concern for market structure, which had given way to focus on prices as the object of regulation, is back. Tendencies of monopolization are no longer being assumed to be benign or natural as had been the case for the past few decades.
The network effects, the economies of scale and scope as well as the reduction of redundancies that monopolization can bring into a networked industry, does not discount the fact that it bestows an unparalleled power to the owners of the network. The question then becomes how do we think about this power and what to do about it.
In this context, here are a few questions that may be relevant:
If monopoly isn’t illegal, how does one decide if it is “natural”?
What are the supply side (cost) characteristics of the market that can be used to justify a natural monopoly? How is such a legal monopoly to be regulated?
What are the demand side properties that justify the tendency of a firm to monopolize an industry?
If monopolization is an acceptable tendency in an industry, how far can we allow the market power to grow? Is the regulation then to be focused on Price? Service quality? Distribution? Efficiency? Social welfare?
What if regulation is more costly than monopolization?
How do we respond to competitive pressures generated by technological change on monopolies?
How do we evaluate the desirability to introduce competition in an already monopoly market?
In terms of regulation, is there a possibility of better information exchange between regulator and the regulated so as to make decisions efficient?
What are the assumptions that get built into the economy with introduction of competition or with changed regulation? How does that change?
If there is only a partial introduction of competition into auxiliary business opportunities of incumbent monopolies, doesn’t that still leave the new entrants in these fields vulnerable to the willingness of the incumbent to share access?
Even so, what are the terms and conditions of this access?
Joskow, P., Regulation of natural monopolies, Handbook of Law and Economics (2007)
To put it bluntly, there may have been a time (perhaps at the end of the Cold War) when 12 per cent of the world’s population could afford to impose demands on China (20 per cent of the world’s population), anger the Islamic world (20 per cent of the world’s population), ignore the demographic explosion in Africa (15 per cent of the world’s population) and humiliate Russia (the world’s second largest nuclear power). That time has gone.
Has the West lost it? by Kishore Mahbubai
In a world consumed by the West’s meltdown, signified by the election of Trump, Brexit, the successful rise of anti-EU parties, breakdown of the ‘Washington consensus’ and shattering legitimacy of multi-national bodies, the Western publications have spilled a lot of ink and dedicated screen-space to analysis of what has gone wrong. However, much of this inspection has only reinforced their sense of exceptionalism and supremacy, in that, this is just a passing phase and the West will find itself soon in a Wonderland.
Away from this hotchpotch, Kishore Mahbabuni looks at the recent Western actions from an Asian perspective in his book “Has the West Lost it? A Provocation” and spills much less ink in the process (just 60 pages!). He analyses the shifting geopolitics and economics that has caught the West blindsided in it’s hubris and interventionism, and casts the Western response to major non-Western events in a new light, one that questions the predominant narrative of Western exceptionalism and highlights the strategic errors in those reactions.
The predominant narrative that posits the fall of Soviet Union and victorious end of the Cold War by the West misses, according to Mahbubani, or atleast underestimates the other more important developments of the rising Asian countries at the time. In the West’s imagination, it was a triumphalist moment that reinforced their power and hegemony in the world. Temporarily it may have been the case. But the belief in this hegemony was permanent. This was memorialized by Francis Fukuyama in his essay “The End of History”. The West further humiliated the already humiliated Russia by expanding NATO, providing a strong political ground for Putin’s aggression in Ukraine.
Furthermore, Mahbubani observes that most powerful West policymakers saw the protests and ensuing repression at the Tienanmen Square in China, feeling good about their democratic political system and capitalist economic system. It shielded the historically important process of the opening of Chinese Economy from Western narrative. On the political changes in China, he describes the new freedoms afforded to the Chinese people compared to forty years ago and asks “would 100 million Chinese tourists return home freely if they were indeed oppressed?”
Similarly, the balance of payments crisis of 1990s in India and later, the Asian Financial Crisis saw the West feeling a sense of financial supremacy over the rest. They felt that they solely had the magic formula of ‘economic growth and political stability’. However, these supposedly struggling economies managed to become the growth engines much to the envy of the West proving the belief wrong that democracy is a necessary condition for economic success. While these major events took place and were narrated complacently in the Western public spaces, Mahbubani narrates three revolutions that took place in the rest of the World that were left unnoticed.
First, he states a political revolution both in democratic and non-democratic societies such that leaders everywhere realized that they “have to demonstrate daily that they are improving their people’s lives”. Another was a psychological revolution with the hope and belief in a better future. “All the things that Western populations took for granted and the Rest thought were out of their grasp are becoming universal.” The third was the revolution in governance in form of better public policies. The west, says Mahbubani, had an influential role to play in these revolutions by providing the rational thinking, sharing its ideas and technologies with the rest. However, his narrative focus limits him from elaborating on the terms on which this has happened.
The book states that strategic errors of the West reached their peak with its reaction to 9/11 and ensuing war frenzy that shielded the important event of China’s entry into the WTO – an introduction of new workers from China into the globalized labor market led to “declining real wages and a smaller share of labor in national output”, especially for the West. While the war hysteria has waned considerably, the interventionism and bombing campaigns remain just as rampant. This, Mahbubani, finds problematic.
Bush’s call to planting ‘seeds of democracy’ in the Middle East is seen as hypocritical by most Muslims. It is a “cynical promotion of democracy in adversarial countries like Iraq and Syria and not in friendly countries like Saudi Arabia.” Often, the West walks away and takes on no moral responsibility for the adverse consequences when intervention turns sour.
On global trends of progress and Western military intervention, he comments:
the two regions that seem to be an exception to this broad trend are the two regions that the West has meddled in the most in recent times: North Africa and the Middle East. Is the relative failure of these two regions a result of bad luck? Poor leadership? Flawed societies and cultures? Or Western meddling?
Has the West lost it? by Kishore Mahbubai
In its supposedly benign interventionism, the West has often assumed that “the modernization and economic development of any society will lead to less religiosity and more secularism” This underestimates the influence of Islam, writes Mahbubani. In fact, “economic development and education are leading to greater religiosity” in Islamic countries. He suggests that the West withdraw completely from the middle east just like it did from Vietnam and let the region progress on its own terms, much like ASEAN countries progressed in time, despite American withdrawal and pessimism.
Mahbubani observes that the Western leaders did nothing to explain to their citizens the consequences of these fundamental changes. Their newspapers and commentators were convinced they were right, either pretending any of the major developments in the rest of the world was not happening or they were more than pleased to dismiss them. They totally missed the monumental shift of power away from the West. While the west shared its wisdom with the rest, it has been very unwilling to take any wisdom.
Mahbubani asks the West to reach a new consensus on its the new global economy in light of the fact that, “from the financial crisis (2008–9) to the Ebola outbreak (2014–16), from the Climate Change Summit in Paris (2015) to the terrorist attacks in leading capitals (2017), we learn that all cabins on the global boat must work together.” In this endeavor, he argues for serious introspection in the West away from the prevalant self-deception, hubris and condescension. The West needs to accept the new reality of its diluted power and changed mind-sets of non-Western populations. Its policy of “maximum insularity and self congratulation” in the latter part of 20th century and disastrous wars and incessant bombings in the beginning of the 21st century have been catastrophic for the world and for itself. The marginalization of United Nations in favor of unilateral actions and for suppression of voices by the West reflects as much of its arrogance as its waning respect in the eyes of the world.
Finally, since American and European interests have diverged, Mahbubani recommends that they focus their individual strategies on their primary enemies – for Europe, it is spillover of threats from Islamic world and for America, it is China. “Americans have taken advantage of Eurpoe’s strategic passivity” and destabilized Europe’s geographical neighborhood. According to him, no Russian tanks threaten Europe unless America meddles in Ukraine, the consequences of which Europe cannot walk away from.
He recommends that Europe work with China to build up North Africa and try to import the East Asian economic success stories into North Africa – a policy which may be in its strategic interest. He also bravely proclaims that America should make peace with the Islamic world as it is not America’s primary strategic challenge.
Iran will never be a threat to America.
Has the West lost it? by Kishore Mahbubai
If America does not course correct, Mahbubani foresees it making the same mistakes that the Soviet Union made while dealing with America, i.e. confusing an economic competitor with a military competitor. For him, “the biggest mistake that America could make is to step up its military deployments in East Asia to balance a resurgent China.” He advocates for a strategic alignment of interests between China and America on the Korean peninsula with a strong commitment that a reunified Korean peninsula be a neutral country.
Throughout the book, Mahbubani makes a compelling case for Western policymakers to rethink the foundation of their foreign policy. While his historical interpretation of events, cast in a new light, is nuanced and provocative, his recommendations seem overly optimistic and unrealistic in a world wanting in the slightest of cooperation among powerful countries on strategic issues. Moreover, some of the suggestions seem to miss the twists and turns of that define any historical process.
For example, while unified and fiercely independent Korea might ultimately a Western dream, coming even for Mahbubani, especially given China’s desire to control Hong Kong in a more centralized manner, Chinese expansion of naval infrastructure in Indian Ocean, East Asia and Africa suggests a divergence rather than an alignment. Whether the Chinese would appreciate a fiercely independent country on their doorstep is anybody’s guess. The more immediate question would be what that independence would entail for the rest of Asia. It misses the immediate neighboring ‘influence’ of China that a unified Korea will inevitably face.
As the Western share of the global population and of global power recedes, the West should calculate that it is in its best interests to have a stronger rules based order. One way to do this is to strengthen, not weaken, the UNSC. The best way to strengthen the credibility of the UNSC is for the UK to give up its seat to India and, as I argued in The Great Convergence, for France to share its seat with the EU.
Has the West lost it? by Kishore Mahbubai
Mahbubani sees the last few hundred years of Western dominance as an aberration which will come to its ‘natural end’. He claims that “modernization is poised to enter Arab, Turkish and Persian societies” just like it enters Asian societies, that the Nordic model of society will gradually become universalized, that the “Middle East region with less Western meddling will ultimately be a predominantly peaceful region” etc. This invocation of a natural order of things that might follow, sounds just as self-aggrandizing as Western exceptionalism.
The failings of democratic political system are dominating Western societies at a point where they need their leaders to make important changes in foreign and national security policies. These challenges will test the longevity of democratic setups all over the world, especially in the context of global challenges managed via national governments. Whether the response is strategically coordinated or not will decide the future of human civilization. The way West responds to this dilution of its power will ultimately cast the mold for the next superpower to fit in.
The best outcome would be a number one power (namely, China) that respects ‘rules and partnerships and habits of behavior’ that America could live with.
Has the West lost it? by Kishore Mahbubai
What will the ‘Beijing Consensus’, if there ever is one? Will China be a benign hegemon? What role will India play?
If history is any guide, the very idea of a sole superpower means rules become perfunctory. Yes, the West has lost it. But the Rest cannot afford schadenfreude. For the ‘new Rest’, China may prove to be just as costly.
On 27th May 2019, Center for Policy Research (New Delhi) hosted a discussion on the recently concluded General Elections of India, 2019 hosted by Yamini Aiyar. It is very insightful and presents many points that are missed out in the regular discourse. You can watch the video here:
Here, I have made some notes from the discussion between panelists based on the points they make respectively.
Yogendra Yadav (soical activist, psephologist and politician)
Post the results, many of us seem to want to elect a new people
Do not conflate consequences with intentions of people – the distinction between the two is the space for politics
What Voter is saying
Care for this country – strength, pride – trust Modi more than anyone else to bring it about
Don’t like negativity about Modi
Don’t take my caste for granted
More frightened by coalitions than by Modi
Voting not for the self, but for the nation
More voting for ideological reasons
Voting for PM
Anxiety about future of country
Resentment against minorities
Causes – beyond the voter’s control
Modi – cult + will to power + ambitions synchronized into one persons
Electoral authoritarianism, more concentration of power – decline of institutions
Public being mobilized to destroy the republic
Still lot of space for creative politics – understand intentions and respond
Space for politics
Recovery of nationalism – should not be surrendered
Religion – recover its inclusive language
Culture and language – speak to ordinary people in how they understand the world
the idea of NYAY (Congress manifesto point) reached only those who would pay for it, not those who would benefit from it,
manifesto was not about getting back power at all,
complete inability to respond to Pulwama,
no response to unemployment, demonization
Nationalism and Hindutva presented as the same thing to the voter
Foundation of BJP is the fraudulence of Indian secularism
Complete deracinated nature of Indian elite
What has India’s secularism done in response to 1992?
Nationalism may be a good thing – can be used against Modi
Beyond a point, media and propaganda can work against Modi
Respond positively to aspirations, not merely what is wrong with Modi
Vandita Mishra (journalist)
A hunger for power even after getting power
Telling multiple stories – Hindutva, rashtra (hit, pratishtha, suraksha), schemes (not necessarily get them but learnt through media), TINA
From citizen to beneficiary to voter – (came to entitlement, rather than empowerment)
Coming together of government and organization (RSS)
Reinforced narrative dominance
Modi makes both his supporters and his opponents intellectually lazy
Distortions of social justice and secularism have to be corrected
Tariq Thachil (academic and political scientist)
BJP machinery built over a long period of time
Need to win large majorities without actually offering broad representations
Pure Modi, one man election (4M with Modi at the center)? Is that true?
Does it trump economic issues?
Motivated reasoning of voters? away from failures towards leaders
BJP or Modi attachment? Is BJP’s partisanship expressed as loyalty to Modi?
Perhaps Modi complements Money, Media and Machinery?
Is mobilization creating a leader effect or vice versa?
2018 – 74% of all income of political parties, 98% of electoral bonds, 99.8% of it more than 10L – money helps mobilization, and projects winnability
Lots of stuff happening at the same time
In some places, Muslims supporting BJP in large numbers
Shekhar Gupta (journalist)
Modi’s rise is a phenomenon, not a fraud on India
2004 – BJP got 9 seats less than INC – TMC, TDP and others didnt want to go with BJP due to Gujarat but attributed to failure of India Shining – convenient explanation
2009 – Credit given to Mrs. Gandhi – loan waiver, MNREGA – not to Manmohan Singh
Where poor are 30% – INC strike rate 68%, 70% are poor – INC strike rate around 30%
Growth was there but it went away
Congress and its durbar undermined UPA 2
2019 – Modi got away with saying that nothing happened before 2014
Much happened – roads, airports, handling of GFC, Satyam handled much better than ILFS
Nobody from Congress said anything about UPA achievements but only about Indira and Sonia Gandhi
Manmohan Singh’s every speech went viral at all times – people remember him as a decent man who did something good
Responsibility of keeping India secular has been outsourced to 15% of its populations
Dalits are no longer with Mayawati anymore – miscoordiation of alliance
Most op-eds don’t go anywhere
People have been defeated despite money – Chandrababu Naidu
Voter in this country does not trust the Congress Schemes at all
JAM trinity works for a lot of people
Journalists and commentators either chose not to see or ignored the delivery of schemes without bribes
Biggest caste vote-bank in India – upper caste
Caste based parties leave a lot of OBCs behind – except Yadavs and Dalits
Congress’ lack of commitment, intellect and its arrogance
Chaikidaar Chor Hai – not taken well
Rahul Gandhi elite – video circulated by BJP
Modi is now elite but people see it that he has earned it
Congress does not understand India’s poverty anymore
The nature of poverty in India has changed – no longer like Indira’s time
G Sampath (journalist)
Sheer structural inequality of this election
human resources (premised on money),
communication (premised on preceding 4)
late campaign start for INC,
no answer to BJP’s bogus nationalism – not even engaged with it, where was INC’s nationalism that let to India’s independence
presidential election without a candidate
no story offered by opposition – no narrative of leader, performance
Are we becoming a managed democracy?
Difference between how Modi approaches Hindutva (instrumental, not ideological) and how RSS deploys it (ideological)
Modi may have done a lot of damage to BJP as an organization and its workings
Elections till 2014 including the ones that Congress lost, were fought on atleast the rhetoric of Nehruvian ideas of liberal democracy, progressive social reform and economic development. Simultaneously, since the Emergency, India has seen ‘pragmatism’, both in economic and social policy, as a governing ‘logic’ used by successive governments to push a patchwork of reforms – a multitude of temporary props to assuage public protests, mitigate crises and stabilize a crumbling system – with rather myopic policy frameworks while leaving myriad discordant conflicts for the future.
Neither Congress nor non-Congress regimes explicitly claimed to any ideological political framework in this period – an ambiguity which suited them in electoral strategy and post-election alliances. While pragmatism gave more room for maneuver, both to Congress and non-Congress governments, it lacked a coherent ideology to combat a new opponent which it has found in the form of Hindutva. In political terms, pragmatism is not an ideology and it can never counter any ideology while it may be a condition for maintaining it.
Hindutva as the governing ethic post 2014
That ideological ambiguity has summarily changed with the 2019 elections, but it didn’t happen abruptly. The governing political ideology of India started undergoing a change starting in the 1970s with the conflicts surrounding the Emergency, Mandal Commission and Babri Masjid demolition. 2019 elections mark a completion of that change. The last five years were, in a way, a launch pad to a new ideological formation – Hindutva – as the governing ethic by the BJP. In many ways, the ideological assertion of Hindutva in India’s political system is testimony to the catastrophically flawed nature of post-Nehruvian pragmatism that was ideologically hollow by design.
While it does not have much to differentiate itself from the
Congress in terms of the economy, BJP has shown that there is much more outside
the economy that it can make people care about. In a way, its 2014 campaign was
very much in the vein of ‘pragmatism’ of preceding elections – promise of jobs,
low inflation, and no corruption – while Hindutva remained in the background. The
ideological divide between the Congress and BJP wasn’t as big a factor then as
it was in 2019. The recently concluded elections were not fought on the old –
who is more pragmatic – terms. There was a clear ideological divide and BJP did
not shy away from underlining it.
What the last five years show is, if the framing of pragmatism is devoid of ideological underpinnings, intentionally or otherwise, it becomes vulnerable to criticism, even subjugation, from another doctrine ready to take the space. The 2019 elections were the first to have been fought on a wholly and radically different ideological plank of Hindutva, with explicit condemnation of Nehruvian liberal democracy.
All the Congress had to offer in response was its own version of Hindutva, justified in the language of ideological pragmatism – it didn’t even try to been seen defending the Nehruvian ideology, content in claiming ownership to Nehru’s legacy. That does not mean that the ideology of Nehruvian liberalism had all answers to India’s problems, just that its policy prescriptions was grounded in solid ideological framework.
Political necessity of opposition’s ideological framework
Being the propagator of the governing ideology, BJP could only commit “errors” – it could never be fundamentally wrong in the way its ideologically shaky opponents could. Moreover, in politics, the point is not to avoid all the errors but to be able to justify it – this needs an ideology. BJP could justify anything within its ideological doctrine – from demonetization to mob lynchings. Congress and the opposition needs to realize that the new common sense about social and political norms have changed, heavily influenced by the ideological preferences of the BJP. The Indian National Congress has to atleast attempt to provide a new common sense.
Frankly speaking, the opposition never tried to decisively dislodge the emerging hegemonic force of Hindutva – they only tried to get around it. What the opposition offered was not a counter-ideology but a pragmatic bend of the prevailing Hindutva doctrine in a less fundamental direction. Calls for pragmatism cannot stand without an accompanying doctrine. Without an ideological framework, a pragmatism can always be framed as ideologically bankrupt. BJP did just that, on every occasion it could. Opposition’s pleas to the pragmatism of Indian voters had no robust ideological underpinning. Successful as it might have been in previous elections, it was seen as an incoherent and defensive response.
If Congress wants to stop Hindutva from achieving hegemony, it has to now fulfill the political necessity of an alternative ideological doctrine in response to BJP’s own ideological assertions. Without an ideological force behind the opposition, Hindutva will become the default governing doctrine of Indian politics. Any subsequent pragmatism thereafter will be forced to abstract from that new common sense, just like pre-2014 pragmatism abstracted from the default of Nehruvian liberalism.
For the opposition to offer anything substantial as a challenge, it has to develop a robust new common sense, based not on pragmatic interpretation of the prevailing views of Hindutva but on ideological coherence of its counter-narrative and exemplar governance where it presently holds power. The unchallenged political sway that the Hindutva doctrine has acquired over Indian politics will gradually seep into constitutional institutions, civil society, academic and research institutions etc. The challenge therefore is to answer the political necessity of a cogent ideology which can provide foundations for pragmatic governance.
I came across this interesting discussion in which governance of the digital economy is analyzed. I have tried to review and present my thoughts on this lecture by Prof. Rainer Kattel.
Prof. Kattel begins with some facts about the digital economy and its effects on privacy, productivity, employment, market concentration and global trade. He only uses these as a plane to discuss some more fundamental changes in our society brought about by digital technologies and its version of capitalism.
Features of the digital economy:
Not just automate but informate: Citing Zuboff, the lecture notes that today’s technologies learns not just about processes but also about users, their abilities and deficiencies such that it improve itself – a fundamental shift from earlier machines which performed routine, automated tasks. This presents questions for management of firms and organization behavior. Although this is a transformation, Zuboff’s work also notes the imperatives of what she calls ‘surveillance’ capitalism are different from managerial capitalism that the lecture focuses on.
Collective production of innovation: Citing Benkler, the lecture notes that production has always been a social process and in the digital age, this is more so as people willing give information into networks that becomes channels of innovation. For example, Open Source Software like Linux which has been amended and improved by myriad developers without profit motive. The question is, why have organized firms if innovation can be peer-produced? This process, according to Benkler, is varied in terms of granularity and modularity such that peer-production happens according to convenience and expertise of the developers.
Intangible Capital: Citing Haskel and Westlake, the lecture notes the increases relevance of brands, teamwork, social networks of employees, ability to source ideas from outside the firm etc. present challenges of measuring value of people as well as products and processes.
Digital Innovation and Competition
While classical economics argues for perfect competition, innovation happens via imperfect competition, as Schumpeter had proposed. The rapid expansion of market share which happens if technology itself learning to do things it is designed to do, can only be viewed as imperfect competition. This leads to reinvention of capitalism as technology changes every few decades, with an emergent new common sense, new products and new opportunity of profits – not of which have the ideal market of perfect competition.
For this, the lecture cites Prof. Carlota Perez’s work on the history of innovation, which shows that for every technological revolution, there is an installation period with bubbles and mania for initial investors, followed by turning point of collapse and recessions, which eventually leads to the general deployment of the technology for general prosperity with the intervention of the state.
While this may be the general trend of technological development and innovation deployment, the length of the frenzy, turning point and start of ensuing deployment period varies across societies and technologies. It is not inherent in the technology but a socio-political decision as to how and when the state responds to intervene such that the technology is used for general welfare. Similarly, the new common sense is also socially constructed.
The lecture also presents multiple interdependent challenges for economists, society and governments that digital technologies present:
Why have firms when products and services can be crowdsourced or peer produced? Will their purpose only be rent extraction from this production? What would it mean for national accounting systems, if tasks that create economic value are so dis-aggregated?
What does this means for markets? Why do we need privately owned platforms when peer-production can be just as or more efficient?
If production of information is collective, why not have commons type ownership? What does it mean for the notion of property?
Welfare state vs personalized services – universality of government policies vs individual-focused customization
Statistical self vs automated self – following norms set by government vs going along with personalized feedback from devices
Countervailing institutions vs digital nomad – unionized labor vs gig workers
Stability and predictability vs agility and experimentalism
From reaction to anticipation – predictive policing
Automation, platforms and inclusion – governments thinking like platforms e.g. payments systems, identity systems and automated services
While these comparisons and contrasts are important, the state and the firms seems to be understood here in the same fashion i.e. as centralizing institutions compared to the individual. Although they may have centralizing tendencies, there economic and political functions are fundamentally different – something we should never lose sight of. Even if the government provides some services or acts like platforms in a digital economy, its political identity has to be understood as separate from firms.
Similarly, the juxtaposition of universality and personalization may be less antagonistic and more about balance,as against what is presented in the lecture. While the automated self with personalized services becomes more prominent, it might not be wise for the state to lose sight of some universality and statistical averages in terms of policy making even as it focuses on the calibrating itself to individual citizens. Moreover, governance that has agility, is experimental, is automated or anticipates policy issues has to be always looked through the lens of inclusive democratic norms before institutionalizing these changes, which may not themselves yield inclusive or constitutionally sound results.
Notwithstanding these concerns, the lecture is an insightful analysis of the challenges and opportunities of the coming digital economy, what we need to think about, where to intervene and how to understand and shape the changes taking place around us.
“Too big to fail” is a phrase used to describe an institution that has grown, or rather been allowed to grow, to such a scale and scope that its failure will mean a systemic collapse. The banks had morphed from the regular Jimmy Stewart banks to market-based Wall Street megabanks, a financial overgrowth that had spread its tentacles into the houses of regular persons, their businesses, their education, their healthcare – all across the world, from the US to UK and Europe.
Their failure was deemed so destabilizing that they had to be saved at all odds. Institutionally, this revealed a peculiar logic: the national interest was in saving purveyors of high finance that had caused the crash. As Tooze writes, Geithner’s “commitment was to upholding the stability of “the financial system,” because without that, the entire economy was bound to fail. That was his key article of faith. The interests of America and the financial system were aligned.”
“Too interconnected to fail” describes the interconnected nature of banks such that failure of one of them precipitates a panic of failure of the entire banking system such that the policymakers find it imperative to save them. For example, globalized finance was deeply interconnected with the American mortgage boom through the shadow banking system. When the Lehman was allowed to fail, the costs in wholesale funding markets rose steeply due to risk of contagion in the interconnected banking system.
As Tooze writes, “The Fed and the Treasury misjudged the scale of the fallout from the bankruptcy of Lehman on September 15. Never before, not even in the 1930s, had such a large and interconnected system come so close to total implosion. But once the scale of the risk became evident, the US authorities scrambled.”
“Too Chinese to fail” refers to the fact that a large portion of the debt issued GSEs, Fannie Mae and Freddie Mac, were held by Chinese investors and Paulson “didn’t want them to dump the securities on the market and precipitate a bigger crisis…”, one that would jeopardize the ‘system’. As Tooze writes in the end, “what worried observers was the possibility of a mass sell-off of dollar-denominated assets by China’s reserve managers.
As the storm clouds gathered, holding China in place was the first priority of Paulson’s Treasury. And Paulson was willing to pay a high political price for doing so…. Nationalizing them helped to prevent a simultaneous Atlantic and Chinese crisis with consequences too awful to contemplate.” However, America was a big market for Chinese goods and “balance of financial terror held”. There was no Chinese dollar sell-off and “the crisis that followed was not an American sovereign debt crisis driven by a Chinese sell-off but a crisis fully native to Western capitalism”.
While the three phrases represent three different features of globalized finance, there also are big overlaps between them. These are not stand-alone characteristics.
Tooze, A. (2018). Crashed: How a decade of financial crises changed the world. Penguin.
Kapadia, A. (2019). Capitalism: Theories, Histories and Varieties, HS 449 (Class Slides). IIT Bombay, delivered Jan – Apr 2019