A horse and two goats

State, Market, Society

The Reserve Bank of India tells PMC Bank not to allow its depositors to withdraw more than a few thousand rupees of their money with the bank. A key manufacturing growth index goes into reverse gear as factory output in India drops compared to a year ago. And communities on either side of the Outer Ring Road on the east side of Bengaluru call for a protest as public services in the area keep dropping to new lows.

This is not the way it is supposed to be. In our democracy, we have invested the State with authority to make good things happen, and stop bad things from happening.

When the PM himself opens the doors to more manufacturing investment, how could there be so little of it five years later? When the banks are overseen by regulations regarding what they can do with depositors’ money, how could PMC Bank end up with such lopsided lending to a single borrower? When urban development in large cities is governed by laws about master planning, how did ORR end up with neither planning nor its master anywhere in sight?

There’s a much longer list of examples one could compile to ask questions like this. The broad theme of all this is the same -- the State has immense power to do good, but somehow that authority is not translating into the kind of outcomes for which this authority has been given in the first place. Where is it all going wrong?

The answers to each of these situations is quite complex, and a uniform response can’t capture their entirety. Nonetheless, there is something in common across such failures -- what we are seeing, repeatedly, is that there are limits to what can be achieved by the authority of the State alone, and that some other ingredients are also needed in the stew of democracy.
One line of argument in response to this is, “but there is nothing wrong with the authority itself, it is just not being used properly.” That’s naive. With such asymmetric assignment of power, we have no right to expect it to be used right. The answer to over-speeding is not better steering.

What’s the alternative? Simple -- there must be three prongs to every goal. It’s better to recognise that any large goals we seek will result from the combined action of the State, Market and Society. Therefore, at the time of setting a goal itself, it is important to ask what roles each of the three will play in realising the goal.

This spread of roles is likely to get us closer to the outcomes we seek.

In some cases, we have passed the point of being able to do anything further with authority. Half the seats in professional colleges are vacant, even though we have a large system of oversight in place to ‘recognise’ the right colleges and universities. Meanwhile, institutions like the Indian School of Business, or BITS Pilani earlier to that, were dissed as unrecognised institutions, despite the consumers’ view that these are very good places to study.

The imbalance of authority is at the heart of State failure. There is almost an entropy of power that results from it. Individuals in public offices pursue their vested interests and use the power of the State itself to shield them. Public services start to creak and fail, but without accountability since their oversight is also by themselves. And every shiny new goal set for development is unmet.

Development is like a team of three horses pulling a wagon. Replacing two of them with goats will have consequences, not only for the wagon, but also for the remaining horse and the goats.

Governments perform better when they create enough space for the innovations of industry and for the personal liberties and economic freedoms of citizens. Countries go through times when the public tells itself that these things are not as important as powerful leadership in government. The invariable consequence of those, throughout history, has been to look back on that as a mistake.