#206 Those Immutable Laws

India Policy Watch: Those Mind Games

Insights on issues relevant to India

— RSJ

Regular readers might have noticed the absence of posts analysing the political economy and politics in general in our editions of late. This isn’t intentional. There’s not much to write about. There is a strange sense of stasis all around. Every move, every act is a chronicle of a future foretold. This inertness stems from a complete absence of ferment in the political landscape. The external factors that could impact politics, like the economy or national security, appear stable. And those directly in the fray have to contend with a political juggernaut backed by a fawning media that takes no prisoners. It is a complete mismatch. So, what can one write about except rallies, speeches and opinion polls

Into this state of ennui, this week walked the Court of chief judicial magistrate HH Verma, Surat. Here’s the Mint reporting on this:

“The Surat District Court sentenced Congress MP Rahul Gandhi to two years of imprisonment in the criminal defamation case filed against him over his alleged 'Modi surname' remark. The Congress leader was later granted bail by the court.

The court of Chief Judicial Magistrate HH Varma, which held Gandhi guilty under Indian Penal Code sections 499 and 500, also granted him bail and suspended the sentence for 30 days to allow him to appeal in a higher court, the Congress leader's lawyer Babu Mangukiya said.

The case was filed against Rahul Gandhi for his alleged “how come all the thieves have Modi as the common surname?" remarks on a complaint lodged by BJP MLA and former Gujarat minister Purnesh Modi. The Lok Sabha MP from Wayanad made the alleged remarks while addressing a rally at Kolar in Karnataka ahead of the 2019 Lok Sabha elections.”

In a remarkable feat of speed and agility, the Lok Sabha Secretariat disqualified Rahul Gandhi as a member of Lok Sabha the next day. As the Hindustan Times reported:

“Congress leader Rahul Gandhi has been disqualified as a member of Lok Sabha a day after the Surat court convicted him for two years in a defamation case. However, he was granted a 30-day bail in the case to allow him appeal in a higher court. 

The Lok Sabha secretariat said in a notification that he has been disqualified from the day of the conviction under the Constitution’s Article 102(1)(e) read with Section 8 of the Representation of the People Act.

As a next step, the Wayanad MP will have to appeal to the higher court seeking a stay on the conviction, in order to prevent the disqualification and the Congress said it will follow the procedure to move to a higher court.”

Look, there’s a tired old way of looking at all of this. And that’s what the discourse has been about this over the past few days. The opposition reminds us how there’s an undeclared emergency at this moment in India. Dissent is being suppressed, the slightest criticism of the PM or his party is seen as an affront to the nation, and the state machinery is fairly quick in settling scores on those not falling in line. There is also the eternal optimism of a certain section of the commentariat that suggests that Rahul Gandhi has rattled the BJP with his Bharat Jodo yatra. And this is the response to keep him in check. I’m sure there is an alternate universe where this is all true. But none among us is turning into Michelle Yeoh anytime soon to enter that multiverse.

As I have mentioned earlier, there’s still space for the opposition, as the response to the yatra shows. But Rahul Gandhi neither has the enterprise nor the ideas to turn that into electoral success. On the other hand, the BJP and its supporters initially argued that a sitting MP cannot make disrespectful remarks about the PM. Apparently, it is not done, especially when the PM is feted the world over for his leadership. Soon old videos popped up that showed we have a hoary tradition of calling our past PMs names. I’m old enough to remember the memorable rhyming metre of ‘gali gali mein shor hai, Rajiv Gandhi chor hai’ that rented the air in 1989 when I first followed a general election in my life. The tack changed. So, now you have the charge that Rahul Gandhi was denigrating an entire OBC community with that statement and triggering possible social unrest. This is a failure to understand syllogism 101. Even if one were to accept the dubious statement that ‘all thieves have Modi surnames’, it doesn’t follow that ‘all with Modi surnames are thieves’. The more nuanced lot is taking the line that it is the courts that are letting the law take its own course, and we shouldn’t read anything more into this. It is possible this is true, but we might again be talking of the multiverse here. Leaving that aside, we now have WhatsApp experts who look for a masterstroke in every decision of the ruling party now suggesting that this is a convoluted plan to give Rahul Gandhi a convenient leg up to be the face of the opposition in 2024 and then decimate him in the elections. If only there were a Nobel prize for politics… 

Beyond the noise, I see three overlapping patterns here, two of which have been strengthening over the past few years and one that is new.

First, there’s that interesting paradox of narrative domination that is at play here. The paradox is the more you start dominating the narrative and the media, the greater your anxiety about a single truth bomb bringing down your carefully constructed image. This is why there’s only a one-way ride to ever greater control of media and opposition voices. Once your ears get used to the perfect melody of your own symphony, the slightest variation seems terribly jarring. And so you overreact reflexively to the slightest provocation because, to your ears, it sounds big. Two things follow from here. Your reaction tends to get disproportionately bigger and harsher. And you create a chilling effect that shuts more people up further. This is all been in play in the last few years. The way to look at the Rahul Gandhi episode is to confirm the anxiety of narrative dominance and also to send out a message if there was any more needed, that no one can get away with direct criticism any more. This isn’t a new phenomenon in India, but the speed and the reach of social media make it a kind of dominance that will be difficult to upend, unlike in the past. 

Second, there’s always a desire to test how far charisma can stretch the ‘reality distortion field’ it creates among the collective who have subscribed to it. This is an ongoing natural process of those who have a hold on their ‘people’ to see how much more of a break from convention can they (the people) rationalise in their unqualified belief in the leader. It is a useful test of the relevance of charisma, and quite interestingly, the only way to build more charisma is to put it to test with more outrageous claims on people. The more you can get away with, the more your charisma. To quote Weber on charisma:

“Charisma knows only inner determination and inner restraint. The holder of charisma seizes the task that is adequate for him and demands obedience and a following by virtue of his mission. His success determines whether he finds them. His charismatic claim breaks down if his mission is not recognised by those to whom he feels he has been sent. If they recognise him, he is their master – so long as he knows how to maintain their recognition through ‘proving’ himself. But he does not derive his ‘right’ from their will, in the manner of an election. Rather the reverse holds: it is the duty of those to whom he addresses his mission to recognise him as their charismatically qualified leader.”   

This business of ‘proving’ himself becomes more difficult the longer you continue in office. Because there will be some dissatisfaction among your people on what goals you aren’t achieving. Some of this is evident in how a vocal minority (with Subramanium Swamy as some kind of a patron saint) seems to be disgruntled and pushing for more wins in the ideological and cultural wars. 

Lastly, I sense there’s a deliberate desire to take certain actions that will be picked up by western media who will bemoan the loss of liberal values in India. This will be a useful rallying point to build a narrative about how there’s still an anti-India global left that’s making a last attempt to sabotage a rising India. There’s nothing to suggest anyone is really worrying about a rising India till we hit some threshold of a middle-income economy with the accompanying economic and political heft. But who cares to test such grand conspiracy theories? It sounds right, and it fits the narrative that our greatest enemies are our own people who are in opposition and who, for power, will derail India. It looks like a winning narrative to me in the run-up to the elections. Also, I can see that there’s a desire to bring a raft of such ’western liberal’ values and set them up in a false confrontation with ‘civilisational’ values of India. And then use the inevitable electoral victory in 2024 to claim that the people of India have spoken and we don’t need the west to judge us using their discredited liberal values. We have our long dharmic history, and we will judge ourselves on its parameters. I have written about this point in the past using the examples of others who have tried to search for this civilisational counterpoint to western enlightenment, including Aurobindo, Kosambi, Vivekananda and Hazari Prasad Dwivedi. All of them ended up with some kind of ecclesiastical or spiritual quest instead of a tangible values doctrine that could guide political, economic or social actions.

I don’t think those who speak in such civilisational terms today have dived as deep as these scholars of the past have. Atleast I haven’t come across that kind of modern scholarship. My sense is their motivation is to continue to discredit western liberal thought for either political gains or to seek a kind of revanchist utopia with its foundations built on caste. In a way, I expect more of this desire to have an ideological battle in the run-up to 2024 and then claim a moral victory on the back of the electoral victory. I’m not sure this kind of false showdown has ever led to anything good as the experience of the 20th century or that of Turkey, Russia or China of late has shown. But there’s an appeal among the ideologically driven to go down that path. To pit the past against the future and hope we will discover the glory in the past to build a future that is better and different from the past. That we will be able to rise over this and get the best of the past and dream up a future that’s uniquely our own. This looks good on paper, but it gets muddied when put into action, as history has shown us over and over again. 

I will leave you with Kafka’s parable from Hannah Arendt’s 1961 book of essays, Between Past and Future:

“Kafka’s parable reads as follows:

He has two antagonists: the first presses him from behind, from the origin. The second blocks the road ahead. He gives battle to both. To be sure, the first supports him in his fight with the second, for he wants to push him forward, and in the same way the second supports him in his fight with the first, since he drives him back. But it is only theoretically so. For it is not only the two antagonists who are there, but he himself as well, and who really knows his intentions? His dream, though, is that some time in an unguarded moment – and this would require a night darker than any night has ever been yet – he will jump out of the fighting line and be promoted, on account of his experience in fighting, to the position of umpire over his antagonists in their fight with each other.”

That jumping out of the line happens only in dreams.    

PolicyWTF: Fretting Over Freights

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Pranay Kotasthane

The difference in the economic trajectories of southern and northern India is an endless fountain. Every person has a different causal story to explain how this economic divergence came into being. As you would expect, some narratives are more popular than others. Some South Indian exceptionalists claim that higher investments in education and health explain the difference. Some of them seek refuge in vague arguments about cultural superiority. The opposing side, in turn, blames repeated invasions and colonial policies such as the zamindari system.

It's tough to test some of these arguments. Some of them are biased intuitions masquerading as reasons. For some serious analytical work on this topic, I recommend this underrated book, The Paradox of India's North–South Divide, by Samuel Paul and Kala Sridhar. We had earlier discussed insights from this book in edition #148.

Among the reasons for the divergence is a policyWTF that makes a cameo appearance in policy conversations: the Freight Equalisation Scheme (FES). Introduced at the height of its socialist fantasies in 1956, FES was a union government policy for pursuing 'balanced industrial development' (Jan Tinbergen says hello). Under this policy, the government subsidised long-distance transport of key inputs such as iron, fertilizers, cement, and steel in the hope that companies in all states would access these inputs at the same costs. The story goes that FES was detrimental to the resource-rich eastern states of Bihar, MP, Odisha, and West Bengal. These states' manufacturing output in the early years of independence was higher than that of Gujarat, Tamil Nadu, and Punjab. But FES nullified their comparative advantage over time and contributed to the economic divergence.

Like other intuitions, this narrative, although compelling, needs a lot more evidence. I, for one, was biased against this explanation. I did not believe that a policy equalising freight transportation could have significant downstream effects that persist over time. And so, I have long been in search of studies that put the FES under the microscope. A recent paper Manufacturing Underdevelopment: India’s Freight Equalization Scheme, and the Long-run Effects of Distortions on the Geography of Production, by John Firth and Ernest Liu, is one such analysis that helps put FES into perspective. I summarise and annotate their findings below.

One, the study finds that the negative effect of FES exists for real. It did dampen the manufacturing prospects of resource-rich regions. The authors write:

We find evidence consistent with these claims: FES achieved exactly the opposite of its purported goal, exacerbating inequality between western India and the resource-rich east. Specifically, we show that FES led industries using the equalized iron and steel to move farther from the bases of raw materials production in eastern India.

Two, as a hat-tip to Hayek's warning against centralised design and price manipulation, the authors find evidence that FES had significant unintended consequences for downstream industries.

even small geographic distortions in input prices can help one region to nose ahead of another and exploit this advantage to steal industrial activity. Over the long term, this can result in substantial effects on the geographic distribution of production.

Three, the consequences of distortionary policies like FES are not immediately visible and hence might lead policymakers to underestimate the negative effects.

Our results show that the transition under FES was gradual. Even though the policy had little effect over its first 10 to 15 years, it led to steady movements of iron and steel using industries out of eastern India, and significant overall effects by the time FES reached its culmination in 1990.

Four, the repeal of FES in 1991 and complete abolition in 2001 had the opposite effect. Industries again went back to the resource-rich states, albeit this reversal was modulated by pre-existing input-output linkages that were built in the FES era.

We find in the case of FES, though, that repealing the policy led industry to move back toward the sources of iron and steel just as quickly as it left. Indeed, the results on implementation and repeal also complement one another, with the alignment between these results building confidence that, in both cases, the distortions related to FES cause industries to move across space in the manner described.

So, FES should be filed in the folder "Govenments are not omniscient". This experience should make us pause when governments make grand designs to interfere in markets. Good intentions are no guarantee for good policies.

Global Policy Watch: Dil Maange More than Moore

Insights on global policy issues relevant to India

— Pranay Kotasthane

Gordon Moore, the co-founder of Fairchild Semiconductor and Intel, died this week. His eponymous prediction, once a footnote in engineering textbooks, has now become commonplace. More so today, as semiconductors have become a test bed for industrial policy and a front for geopolitical confrontation between China and the US. So, let's discuss some less-known concepts about Moore's Law.

Moore's Law is actually an observation, a conjecture that has stayed true over the last 50 years. Gordon Moore, writing for the magazine Electronics in 1965, claimed that the number of transistors in the chips that Fairchild was making seemed to double every two years. He made this prediction when an IC contained 64 transistors. A testament to his foresight, an Apple A14 chip today has 134 million transistors per square millimetre.

There are several versions restating this prediction. More transistors per IC implies that the cost of implementing a functionality halves roughly every two years. That's the reason that the retail prices of electronic products fall rapidly even as newer products become faster and better.

Another variant of Moore's prediction has come to be known as Rock's Law. It states that the capital cost of a semiconductor chip fabrication plant doubles every four years, limiting the progression of Moore's law.

That Moore's prediction became a law is a testimony to human ingenuity and decentralised innovation. For decades, it has served as a pole star for the semiconductor industry. The "law" became a benchmark that focused efforts of the entire fraternity.

Several obituaries of Moore's Law have been written before. But every single time, it was defied, not just by technological improvements but also by economics. The comparative-advantage-based specialisation starting in the late 1980s was crucial for keeping Moore's Law alive. Companies kept becoming exceptionally excellent in one specific segment of the IC supply chain, leaving other parts to a different set of companies. The vertically integrated design model faded away in favour of a fabless-foundry-assembly model, unleashing unmatched creativity. This happened not because of some anti-trust regulation to break vertical integration but evolved organically as a result of market-based incentives. I wish people understood this aspect of Moore's Law better. It’s not just about technological progress.

I often wonder if this ethos of Moore's Law can be transported to other spheres. In recent times, Sam Altman of OpenAI makes a similar case:

The best way to increase societal wealth is to decrease the cost of goods, from food to video games. Technology will rapidly drive that decline in many categories. Consider the example of semiconductors and Moore’s Law: for decades, chips became twice as powerful for the same price about every two years... In the last couple of decades, costs in the US for TVs, computers, and entertainment have dropped. But other costs have risen significantly, most notably those for housing, healthcare, and higher education. Redistribution of wealth alone won’t work if these costs continue to soar...

“Moore’s Law for everything” should be the rallying cry of a generation whose members can’t afford what they want. It sounds utopian, but it’s something technology can deliver (and in some cases already has). Imagine a world where, for decades, everything–housing, education, food, clothing, etc.–became half as expensive every two years.

Moore's prediction was enabled by a combination of technological and economic factors. Can it become a guiding light for other fields? We hope so. Yeh Dil Maange More than Moore.

HomeWork

Reading and listening recommendations on public policy matters

* [Podcast] On Persuasion: Yascha Mounk with Martin Wolf on the Crisis of Democratic Capitalism.

* [Book] Fabless: The Transformation of the Semiconductor Industry by Daniel Nenni is a good book to understand the industry.

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