18 Feb What if those who argue for economic reforms are corrupt?
I do consider myself as a practicing economist, and in that position, I see the usefulness of pro-market reforms in enhancing the efficiency of the supply of a number of goods and services, in certain contexts. I have argued for such reforms as an academic, activist and also as a consultant in a few assignments which are aimed at institutional reforms in specific sectors.
It is equally true that such pro-market reforms are not appropriate in the case of certain other goods and services. It is the economists who have a clearer understanding of the cases where market `fails’ to enhance social welfare. However there are some people (including economists) who advocate `markets’ as a solution without understanding the specific case and the context. They are wedded to a pro-market ideology. Similarly, there are those who oppose it from an ideological stand point. To some extent, such an ideological positioning may not be avoided, and that is common in public debates.
How do public at large or common people perceive the argument for these economic reforms, is another interesting story. I have developed an interest in this issue nearly 15 years ago, and that has led to my first book which analyzed the `social opposition to reforms’[i]. There are different reasons for specific groups of people to oppose a reform plan even if its implementation would enhance the welfare to all or the majority. The costs of reforms are certain whereas the benefits could be uncertain. There would be some people who may be affected by any reform, and it may be difficult to identify and compensate them adequately. These losers may be organized as interest groups who can influence policies whereas the gainers may be citizens in general and they may not come together. There are a number of other reasons too.
In general, common people are not that informed of the gains of an institutional reform. It is not that easy for them to assess or perceive correctly such potential gains. There are difficulties in acquiring and processing relevant information. Hence people may depend on what can be called `signals’. Instead of judging messages on the basis of their `merit’, people may evaluate these on the basis of the credibility of those people who communicate the message. In fact, the credibility of messengers is probably more important than the worthiness of message, especially among poorer and less educated people.
This is a general `epistemological’ issue, more so in an underdeveloped society. Most people are not capable to evaluate the worthiness or usefulness of new knowledge which may include a proposal to reform or for social change. Hence there may be a need to have the signals of credibility on the part of reformers or advocates of social change. If we analyze human history, one such source of credibility or signal is that the `reformers’ are not that self-interested. These reformers would communicate their sincerity in many ways. The sacrifice of one’s own comfort (and luxurious consumption) in a visible manner is a way to convince the world that their arguments are not to meet their narrower self-interest but for a public purpose.
This could be one reason for the sacrifices (in terms of consumption) made by saints, priests, social reformers and some great political personalities, though these may be justified with religious and other moral reasons. Celibacy is part of this sacrifice and signaling. I am not arguing that such a signaling is perfect in all circumstances. It is difficult for people to reject the `incorrect’ messages given by people who have `sacrificed’ a lot for the society. This may lead to the acceptance or persistence of inappropriate norms. That is another issue and we may consider it in another essay.
There is another side to this argument, and that is closer to the theme of this essay. The lack of credibility of the `reformers’ could be a major factor undermining the social legitimacy of reform proposals. That is valid for economic reforms too.
A bank executive who has been an important face in the discussions on economic reforms in India is currently under investigation about the decisions or actions (inactions) that may have violated principles to guard against the conflict of interest. A politician known for his advocacy for economic reforms is under investigation for possible corrupt or illegal deals. There are economists who make a lot of money from private organizations which are likely to benefit from the reforms advocated by them. The business press which is at the forefront in the advocacy for economic reforms is closely connected (through ownership) with specific industrialists. There are many such cases in India and elsewhere.
What do these communicate to people at large? They cannot be faulted if they think that all this noisy advocacy for economic reforms is to make money `illegally’ or `illegitimately’ for some individuals. They have seen that privatization is, and can be, used for amassing wealth by specific individuals. Many people may not see any visible gains in their life due to those economic reforms which are implemented by different governments. They may think that the inefficiency of the status quo would be better than the cronyism of the post-reform situation. Hence they would be very suspicious of (and cautious in supporting) pro-market reforms. For them, it is difficult to separate out the merit of reform proposals from the credibility of reformers.
Political economists have been concerned about this issue for some time. There is an argument that it is the left-of-centre politicians who can implement economic (and pro-market) reforms more effectively. The cases of certain Latin American countries (including Brazil under the leadership of Lula) are cited as examples. When right-wing politicians try to implement such reforms, it may not get the support of the masses especially the poor and lower middle-class. On the other hand, left-of-centre politicians may be able to convince these people (or to signal them credibly) the importance of such reforms for the society as a whole. This argument is true to some extent.
I can cite a recent example from Kerala. There has been a practice called `Nokku Kooli’ within the state. This is a charge collected by unionized head-load workers from the client, when they are not hired for the job. These workers think that they have the right to get the work, and hence they should get a compensation, if they are not hired by a client in a specific case. Needless to mention that this practice imposes a higher cost on not only entrepreneurs and industrialists but also others including middle-class households. There was a felt need to abolish this practice among sections of Kerala society, but that was not possible due to the unionization of workers and the political support that they enjoyed within the state.
However the current state government headed by Pinarayi Vijayan could abolish this practice. In my view, such a decision is possible only by a government headed by the left-front. If such a step is taken by the Congress, it would have been interpreted as a reflection of its anti-worker position, and that may have fuelled a notable social opposition within Kerala. On the other hand, the decision of the left government is not opposed as it is known for its pro-worker positions.
In summary, there would be much greater opposition to pro-market economic reforms (even if these are socially useful) if those who advocate such reforms are seen corrupt by the people at large. Social change and economic reforms require attitudinal and behavioral changes on the part of people. These require convincing the majority in society. It cannot be done by rational debates alone. There have to be signals of credibility on the part of those who advocate reforms.
A similar pattern can be seen in politics too. There is a perception that, despite all the high talk and ideological posturing, (liberal) politicians work with their narrower self-interest. This may manifest in making money (say by wheeling and dealing) or promoting one’s own spouses and children in politics or by tweaking public policies to further private or business interests. This would create a situation where people may lose trust in politics itself. If politics serves business in hidden ways, people may think about electing business men to govern them! Then they need not spare time and effort to unearth the hidden transactions between politicians and capitalists. People may see a higher value in anti-establishment but unproven ideologies and ideologues. They may be persuaded by virulent and polarizing leaders. They may lose faith in secularism, democracy, and institutional propriety or these terms or concepts may lose their legitimacy. They may see a big gap between the ideology and practice. All these can undermine seriously the emergence or sustenance of liberal democracy in different parts of the world.
[i] Santhakumar, V. (2008) Analyzing Social Opposition to Reforms: Evidence from Indian Electricity Sector, New Delhi: Sage Publishers.