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Mainstream, VOL LI, No 43, October 12, 2013

Competition for Inefficiency: An Indian Perspective

Monday 14 October 2013

by Abhishek Kumar and Sreekutty Mohandas

The 1980s were a decade of memorable incidents for the world in general and India in particular. The efficiency of the market economy, propagated by Thatcher and Reagan, was receiving immense political popularity and around the same time Eugene Fama’s efficient market hypothesis received rave academic acceptance. Margaret Thatcher popularised the idea of TINA (There Is No Alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities which are unleashed by a free enterprise system). TINA formalised as the Washington Consensus by John Williamson (1989) was offered as a policy prescription to the developing world to achieve sustained growth.

The Indian economy during the eighties was growing but was held back by the shackles of a closed economy and an inefficient, mono-polistic public sector, which virtually throttled competition. Rajiv Gandhi, with all his vision and awareness of world affairs, introduced the reform process with an aim to achieve higher growth through competitive efficiency. The reform process was subsequently forwarded under the stewardship of Dr Manmohan Singh as a solution to the crisis of 1991 and hence India formally moved towards a competitive economy based on unfettered markets. However, the sad fact is that this idea of competition did not get itself confined to our economic system alone. As extra competition could lead to highly inefficient market equilibrium, in the same manner the percolation of competition in
other aspects of our society have led to quite inefficient outcomes, and hence the competition for inefficiency.

Competition for Appeasement

The late eighties and early nineties brought the true result of JP and Lohia movements, when the Congress became a minor player in the Hindi heartland and regional parties took the centre-stage with the BJP rising on the strength of the Ram Mandir issue. The emergence of new parties reduced the vote-base of the Congress, infused enormous political competitiveness and expedited the social reform process, but this led to a sense of assertiveness among those castes which have recently found political identity. The politics of appeasement became handy for exploiting this newly-found identity and sense of assertiveness, and thus consolidating the vote-bank.

The behaviour of a majority of our political parties is akin to noise-traders in the stock market as they flock into the political system expecting a bounty in the form of vote-bank in return for appeasement. Minorities may need a preferential treatment so that they are not left behind when compared to the majority. How-ever, the gradual metamorphosis of this preferential treatment to appeasement has become a bubble, which has been subjected to inflation since the reforms era. Rajiv Gandhi’s government overturned the Supreme Court’s verdict on the Shah Bano case through legislative action for appeasing Muslims and later went on to establish the Ram Lala in Ayodhya as a balancing act. The socially important Mandal Commission recommendation was viewed from a casteist angle and with that the political debate in this country became increasingly aligned to caste and religion. Hence, division on the basis of caste and religion became imperative for obtaining a consolidated vote-bank.

Helplessness on certain issues often results in the institution of commissions and committees to pacify public anger. The government constituted commissions likes the NCSC, NCST, NCBC, NCM, NCLRM, NCW and finally an NHRC (for the rest of gender, caste, community and religious groups). What could possibly be the rationale behind creating multifarious commissions? Are women, SC/STs and minorities not human beings or do they need some above-human treatment by creating the respective commissions in their names? In fact, multiplicity of commissions without enough teeth portrays the government’s intention of appeasement rather than action.

The planned Equal Opportunity Commission is a welcome move by the government to substantiate Articles 15 and 16 by leaving no room for nepotism either in the public or private domain. However, restricting the Commission exclusively for a particular community negates the very basic idea of equality and leaves the imprint of appeasement.

Competition for Identity

Today, the political discourse in India has become so competitive that it has lost relevance in the areas of utmost concern. If we go into deeper analysis of our political system, we find that there is a stark ideological void as well as an ineffective performance appraisal in the very foundation. The ideological void has led to the creation of cadres on the basis of caste and religion, which can be easily mobilised for appeasement and raising the communal temperature on the eve of elections (as seen in the Muzaffarnagar riots). In the political arena, the performance appraisal of leaders is reflected in the voting pattern of the masses. Voting on the lines of caste and religion has been posing a serious setback on the real issues of governance and development. Hence, even while reeling under the pressure of an economic crisis, the so-called servers of the common man find it appropriate to revive the Ram Mandir issue (Chaurasi Kos Yatra), a replica of Babri Masjid etc.

Competition for Numbers

Political parties woo voters by taking numerical credit rather than focusing on development with a vision. In a country where lots of colleges and institutions are dysfunctional due to lack of finance and regulatory oversight, our governments take pride in announcing the number of universities they have started. In our establishments, where the performance appraisal system is ineffective, the only way forward to move up the ladder is through networking rather than working. This kind of competition does not in any way lead to the best performance but is resulting in an overall underperformance.

The debate on education in India is mostly concerned about the number of literates, number of graduates etc. but the question of real value added at each of these levels remains behind the shadows of these numbers. This is evident from the trivial difference of Rupees sixtyfive in the wage rate prescribed by the Government of Delhi for non-matriculates and graduates and above (328 rupees per day for non-matriculates and 393 rupees for graduates and above). [Source: Labour Department, Government of NCT of Delhi]

It would be incorrect to forecast that India poses a skills threat to the developed Western world. As per the Mckinsey Report (2005), only 25 per cent of our engineering graduates and only 15 per cent of our general graduates are globally employable. India graduates millions, but only a few are fit to hire. (WSJ) This is because there exists a serious gap between education and performance in our country. Apparently, this terrible degradation of academic environment is as a result of competition for inefficiency. Divergent thinking, innovation, creativity and academic entrepreneurship are either ignored or hardly given legitimate encouragement at a majority of our educational institutions. Hence, transformation of our economy into a knowledge economy is still a far cry!

Competitive Corruption

Economic reforms in this country were based on the virtue of competition that would lead to an efficient use of scarce resources and will thus bring higher economic growth and development. The ill-effects of competition have gradually seeped deeper into our economic system as most of our entities in collusion with government establishments are competing to grab scarce natural resources like spectrum, coal, natural gas etc. for rent-seeking, thus giving way to crony capitalism. The rent-seeking behaviours certainly decrease the pace of innovation and efficient utilisation of resources. Crony capitalism also paved the way for large-scale corruption leading to subsequent judicial overturns of government decisions. The impasse on the Lokpal Bill has questioned the will for transparency, thus diminishing the credibility of our political class leading to a loss in investor confidence and stalling the growth process. At a time when investors like Jim Rogers are shorting India, it would be unjustifiable to blame global problems in their entirety as the obvious reason for our slowdown

Our economy is again in doldrums. Many Asian countries in general are facing a depreciation of their respective currencies, thanks to the Fed Reserve’s impending withdrawal of quantitative easing. This economic mess is largely a homemade disaster as ever increasing corruption and an extremely hostile political environment disrupted the business in Parliament leading to a complete policy paralysis. The parties’ reliance on appeasement for elections has kept them away from due reforms and measures needed for enhancing the growth process. It is a well-known fact that in the later stages of the growth process as catch-up growth dries up, knowledge in the form of innovation becomes inevitable to sustain that momentum. Unfortunately, for all practical purposes, our education system is not in that design for generating ideas that further growth.

In the long run, laissez-faire alone would not sustain growth as is evident from the recent financial crisis. Unfettered reliance on the market without the state playing a responsible role has led to economic disaster everywhere. And what can possibly be expected if the state itself is shirking away from its responsibility?

Abhishek Kumar is an Assistant Professor, Shivaji College, University of Delhi and Sreekutty Mohandas is an Assistant Professor, Motilal Nehru College (Evening), University of Delhi.

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