India is an extremely poor country even among developing nations. It ranks only 137th in terms of per capita income (International Monetary Fund 2010 data). India’s annual per capita income is only around US$ 1,200. Compare that to China, which ranks 95th, with an income of US$ 4,300. Note that around 1978, when China started liberalizing its economy, India was actually richer than China.

The world is constantly reminded that India is the largest democracy. That it is a democracy appears to be the highest accolade India has any claim to. Paradoxically, this same badge is used as a shield for deflecting all criticism directed against India for its failure to develop.

Democracy and Development

The question whether democracy is a help or a hindrance to development is important. Economic development and growth is not dependent on democracy. It is quite possible to have one without the other. There are sufficient examples of that around the world. Absence of freedom, however, pretty much guarantees a failure to develop and grow economically. Empirical evidence abounds in this case as well.

Lee Kuan Yew, prime minister of Singapore from 1959 to 1990, pointed out in a speech in 2006 that,

“... democracy should not be made an alibi for inertia. There are many examples of authoritarian governments whose economies have failed. There are as many examples of democratic governments who have achieved superior economic performance. The real issue is whether any country’s political system, irrespective of whether it is democratic or authoritarian, can forge a consensus on the policies needed for the economy to grow and create jobs for all, and can ensure that these basic policies are implemented consistently without large leakage. India’s elite in politics, the media, the academia and think tanks can re-define the issues and recast the political debate. They should, for instance, insist on the provision of a much higher standard of municipal services.”

License Control Permit Quota Raj

Indian leaders and policymakers have a seemingly schizophrenic attitude towards the people. The people are assumed sophisticated enough to figure out who should rule the nation, but they are not smart enough to make simple day to day decisions; for the latter, they have to have a patronizing government official in charge. They set up the “license control permit quota raj” which dictates nearly every aspect of economic lives of citizens.

That command and control system prevents people from productive activities and forces them to seek favors from the government. India is poor because Indians lack economic freedom. Government control retards economic growth.

Control of the economy does two things. First, it reduces economic activity and consequently growth. Second, it gives rise to rents (profits made from being able to manipulate regulations), which then attracts the most criminally corrupt to gain control of the government. Rent-seeking, rather than good governance, becomes the sole aim of those in government.

Rising Corruption

Mid last century, the degree of corruption in Indian politics was high but compared to what is the norm today, it was as if the politicians of the past were selfless social workers.

It’s a downward spiral. Reports of corruption in the tune of billions of dollars have lost their power to shock and surprise. At the highest levels of the government there are criminals, and the general public just takes it as business as usual. Fact is that most people are totally unaware that those billion-dollar corruption deals affect their well-being, and theft of public money is coming right out of their pockets.

The criminally corrupt are not competent to make good policy given that it was not their public policy brilliance that brought them to power. Besides, good policy generally entails a reduction in government power and control of the economy. So why would they do it even if they were advised by others who know better.

Liberty and Democracy

Find out just what people will submit to, and you have found out the exact amount of injustice and wrong which will be imposed upon them …. The limits of tyrants are prescribed by the endurance of those whom they oppress.

American abolitionist Frederick Douglass (d. 1895)

A large country like India cannot be ruled without some degree of popular consent. That the population gives that consent despite the enormous harm the tyrannical government does to them would be inexplicable but for the fact that the rulers make sure that the population does not ever become informed enough to know that they are living under a tyranny.

India has been a democracy for a long time. But India has not been free since very long. Alexis de Tocqueville pointed out over two centuries ago that liberty and democracy are not the same thing. Indeed, there is sufficient evidence over the centuries that democracy has existed to show that democracy can be the enemy of liberty. We must keep in mind that a despotic dictator like Adolf Hitler was democratically elected.

Tyranny and Democracy

India’s government is elected by the people. But being popularly elected as a democratic government does not mean that it cannot also be a tyranny and deny the people freedom. The subjugation of the population can be as real in a democracy as in a despotic rule. As Murray Rothbart wrote,

“... every tyranny must necessarily be grounded upon general popular acceptance. In short, the bulk of the people themselves, for whatever reason, acquiesce in their own subjection. If this were not the case, no tyranny, indeed no governmental rule, could long endure. Hence, a government does not have to be popularly elected to enjoy general public support; for general public support is in the very nature of all governments that endure, including the most oppressive of tyrannies. The tyrant is but one person, and could scarcely command the obedience of another person, much less of an entire country, if most of the subjects did not grant their obedience by their own consent.” [From the introduction to the book by Étienne de La Boétie “The Discourse of Voluntary Servitude” (1576)]

Given a choice between freedom and democracy, freedom wins. It wins because freedom allows the individual to grow and flourish. Democracy is about governing people while freedom is about living. Freedom to live and work as you choose is better than having the right to choose from whom you will take orders but without economic and personal freedoms.

The Flawed Implementation of Democracy

Democracy is a form of government, only a means to an end. As a system of governance, it is an abstraction. How that abstract system is implemented on the ground depends on the people involved, the specific circumstances and contingencies of history. Democracy is an idea and translating it into a workable system can be subject to failures.

One kind of failure is tied to expectations of voters. The voters’ rational expectations about the usefulness of their vote on the aggregate can lead to either a good or a bad outcome.

Democracy is not just about voting but rather about informed choice. It is costly for voters to inform themselves about political parties. Besides there’s time and effort required to vote. If the expectation is that others will not be making the personally costly effort of making informed choices, then the individual voter will rationally conclude that it is not worth the cost of informing himself about which party best deserves his vote and then voting – because his vote would not count in the outcome he desires.

Democracy Failures

Democracy as an ideal works flawlessly in an ideal or first-best world. But like markets and their failures, in the real world democracy failures lead to seriously flawed results that have awful consequences for hundreds of millions in a country like India. It is time that we honestly confront the reality of democracy failures and figure out a way to address them urgently and seriously.

The observation that countries get the government they deserve is trivially true. The argument is simple. The people who constitute the government of a democratic state are chosen by the people since people elect their leaders. Very poor governance of a state is a reflection of the people, in a very direct sense.

Making India Prosper

Our goal is to see that India reaches its full potential as a nation. We don’t have to precisely know what that potential is. What we do know is that it is performing far below its potential and expectations. We can be reasonably sure that its political leadership is responsible for its dismal performance. Therefore the most urgent change needed for India to reach its potential is that the quality of its governance has to improve. That means we have to have better leaders. Therefore, it is up to us to choose wisely and elect competent, visionary, and dedicated people to leadership positions.

It can be validly argued that what we really need is a structural change in the governance in India. Meaning, the system needs change, since without the change in the system, the same old kind of people will continue to be elected. The reason criminals enter politics is because the system rewards crooks and penalizes honest people.

Awareness Precedes Action

What we know has a bearing on what we do. Therefore we have to first know what the situation is. Like all journeys, we have to begin where we are. Wishing that we were somewhere else — nearer to the goal — would be of no use. Our starting point is that we have a dysfunctional system of governance.

The people in charge are evidently incompetent. They must be, since otherwise we would not be in the sorry state that we are in. Incompetence is not a crime, though it should be when the stakes are so high. What is definitely a crime is being a criminal and being in charge of making policy. There are too many criminals in Indian politics. That’s our starting point.

Our Ignorance

There is a significant middle-class educated population which is capable of actually comprehending the connection between the corruption and government control. But having the capacity to comprehend is not the same as actually comprehending. Trouble is that they have not had this connection actually explained to them. The education system has not prepared them to think critically. Then of course they are too distracted by bread and circuses (or pizza and cricket, if you please) to figure it out. But even if some of them have figured it out, they are a minority and worse still, a minority that does not bother to express its outrage.

The story becomes even more dismal when you consider what the criminals do to remain in power. They tax the productive sector of the economy and hand out largess to the unproductive sector in exchange for their votes. As the saying goes, robbing from Peter to pay Paul will always ensures Paul’s support.

We Need Structural Change

We can easily imagine reforms in the way democracy is implemented which will make a tremendous difference in how India is governed. Consider these changes:

1. Have a high barrier to entry on who can contest elections. Make the minimum requirement so stringent that only highly qualified people, who have demonstrated professional excellence, personal integrity, deep commitment to the overall development of India, etc., can be candidates for political posts.
2. Have a high barrier to qualify as a voter. Make it a requirement that only those who are high-school graduates, have at least a basic understanding of the political process, the challenges the country faces, the need for public honesty and integrity, etc., can vote.
3. Have high barriers to who can contest elections and who can vote. That is, implement points (1) and (2) above.

These reforms will strengthen democracy by shifting the power away from politicians and towards the people – which is precisely why the political parties will not allow these changes.

Caught in a Bind

It would be good to have structural changes but we are trapped in a Catch-22 situation. The people who have the power to bring about structural change in the system are the current set of politicians. Since they have clearly achieved that position within the current system, they have no reason to alter the system in such a way that it will prevent them from reaching the position. Therefore seeking a structural change, while good, is pointless at this point.

We have to work with what we have. What we have is a democratic setup in which everyone has a vote. That is the only card we hold and it is up to us to make the best of it if we are to win at this game. We owe it to ourselves. We owe it to the next generation.

Urban Voter Apathy

Let’s consider this in the context of Indian educated urban voters. It is generally known that they largely choose to not vote, believing that their votes don’t count. With sufficient numbers of them holding this view, the expectation is rational since it amounts to a self-fulfilling prophesy.

The reason for the powerlessness of educated urban people is to some extent due to their being a minority. Only around 30 percent of the population is urban. Compounding this problem is the fact that individuals in this segment are a disheartened lot and have resigned themselves to the idea that there is little they can do to affect the outcome of elections.

They are disenfranchised and to a large extent this disenfranchisement is caused by their perception that their vote cannot matter. The political parties know this and quite understandably neglect the interests of the urban middle-class educated voters. This further alienates the urban voters. In essence this is voluntary disenfranchisement of the urban voter which partially accounts for the election of undesirable people to political office.

Political Parties Respond to Voters

Political parties, in their turn, noting that voters are not bothering to inform themselves, and/or are disinclined to vote, will rationally not put in any effort in differentiating themselves – which is costly for the political parties – to appeal to voters.

The outcome will be disastrous: political parties that don’t have to put in any effort in attracting informed voters and a set of political parties that are hard to differentiate. The parties then don’t bother to address the concerns of voters and thus misgovern without fear of consequences. The desirable outcome would occur only if voters expended effort required for informed voting, and political parties responded appropriately to the voters’ efforts.

Change Voters’ Minds

One mechanism to nudge democracy from the bad equilibrium to the good equilibrium readily comes to mind. That is, somehow change the expectation of the voter from one that says that his vote does not matter (which would be rational if he believes that others will not be voting) to one that says his vote matters (because others will also be voting.)

A voter will vote if he or she is confident that sufficient numbers of like-minded voters will also vote. This can be achieved by creating a coalition of voters who ex ante commit to voting, and this coalition choosing the party or the candidate to vote for based on a set of values shared by the members of the coalition.

In the next chapter we explore the “Pretty Good Principles” and later how we — each one of us — can make a difference.