Saturday, July 28, 2012

Hindu Economics: More brass-tacks

In a previous post (click), I had proposed that think tanks for the Hindu right should work on a Hindu field of economics. The reasoning behind the proposal was that if it is anybody in the Hindu fold that doesn't take for granted what the West designs for its society, it would be the Hindu right. To build on this, the book on Hindu Economics by M.G. Bokare might be useful. Mr. Bokare has done a yeoman's service to the Hindu cause by giving some basic principles on economics after delving into the Vedas, the epics, Shukraniti, Viduraniti and the Arthashastra by Kautilya.

So let's start with the basic definitions. We will use a not yet outdated and at the same time easily understandable and less controversial definition for economics as was given by Alfred Marshall: 

"Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus it is on the one side, the study of wealth and on the other and more important side, a part of the study of man."

Quoting this paper (ref), Hindu economics in the past has been proposed to have a similar definition:

"The objective of Hindu economics is to guide individuals to lead a meaningful satisfying life complete with all resources in abundance." 

(Barring the focus on money, this is similar to how economics is being defined in that it seeks to find a perfect distribution of resources to needs, and maybe it was apt for its time because money was not the centre of all activity in earlier times.)

Now let's talk about money making. There are three major ways, (not including a zeroth way) which in the order of outcomes in terms of income security are as follows:

0) The zeroth way of money making is soaking up government welfare. A brilliant indictment of one such scheme can be found here (click). I have numbered this type as zero because of the outcome, which is that such schemes lead to no productivity and this method of earning money ends as soon as the government runs out of other people's money. Besides, productivity lost due to badly prepared schemes make government tax revenues fall and thus "other people's money" runs out faster. 

1) The first important method of money making is based on skill development. Suppose a person X is to get vocational training for a certain skill, and labor endlessly at a set wage till kingdom come, live within his means and be satisfied with it. The risk is that some Y who can do the same thing as X might come up in the same job who is willing to work for less. Or let's say that Y belongs to a country that doesn't even have a minimum wage law like X's country and it is easier to set up shop there. Then, the risk is that X will lose his job to Y. We thus see that basing wealth generation on mere skills is a risky proposition and sooner or later, we'll be left dry. 

2) The second is resource extraction and sales. Suppose a country X has a large population of salmon in its water bodies, a large reserve of oil below its soil and so on. A simple way is to exploit these resources to the hilt and build the economy on that. However, sooner or later these resources will run out and so basing the country on resource generation as a wealth source might be more secure than basing it on skills, but in the long run it is also not a good proposal.

3) A more secure way of money making is that the person X in case 1 mentioned above gets genuinely interested to make a change in his living conditions, reads up more in his field, trains more in his spare time and comes up with a brilliant idea/invention that can make him more productive and can give his employer huge profits. That is how he eventually turns out to be different than Y and his employer would be pleased with him even though Y provides cheap labour. This is the way of success that rich countries promote. An economist who wants to design a good economic system must recognize this importance of innovations and bring out concepts in economic policies that promote or make a case for innovativeness. 

It is upto future Hindu economists and associated think tanks to decide what path of the above 3 (or a combination of two or more paths) they wish to take but my earnest desire would be that they take path 3.  It is impossible that India had the biggest economy in the world until the British arrived without a model for innovation and Hindu economics must be geared towards finding remnant pieces of this innovation model along with incorporating some western practices (credit for this idea goes to Rajeev Malhotra's yahoo discussion forum on breaking india). Taking M.G. Bokare's tome on Hindu economics and other papers by prominent current Hindu historians, we will now see what concepts of his Hindu economics promote innovation. The ultimate efficacy of Hindu economics will be in how it manages to outperform the western capitalist systems in the race of developing new science and technology. 

The basic principles that Bokareji sets out with are:

1)  Doctrine of Abundance (proposed in the Vedas)

2) Doctrine of self employment (proposed by Vidura)

3) Principle of competition (proposed by Shukracharya and Kautilya)

4) Principle of pricing (proposed by Shukracharya and Kautilya)

5) Principle of taxation. (proposed in Shanti Parva)

Much of this is similar to the free market system promoted by libertarians*. The doctrine of abundance is similar to the argument made in the west for more efficiency (i.e. a larger output from the same input). A more efficient system would have a higher production and hence provide for abundance. Self employment provides for an argument for capital intensive investments in R & D to promote production, reduce labor requirements, have higher wages and ultimately provide for laborers to go it alone in their economic life. Competition too provides for scientific progress when one company is trying to beat another at a certain activity, thus resulting in either better quality goods or services. It also requires a deregulated* system with minimum interference of the state to allow participation in a certain activity by smaller players. The principle of pricing suggests that with abundance and competition, it will always tend towards going lower.  Taxation in the Vedic era was low (at max, the Manu Smriti mentions it as 1/6th of income), thus allowing for significant accumulation of capital in the hands of entrepreneurs and giving them room for investing in research and development. We might thus have answered a question raised in an earlier post: that the Indian economic system was similar to a capitalist system but of the austrian school of economics. A break in the education system as proposed earlier could have caused a bend in the development of Indian economics and caused it to veer off onto a socialist trajectory. The utility of a study in the Hindu economics will lie in convincing at least the Hindu right to get off socialist or even Keynesian economics.

Somewhere along the lines of increasing tech development, Bokare has a problem with people going unemployed due to tech improvements in companies and the resultant reduction in requirement of manual labor. But this affection for getting people employed contradicts with his preference for self employment. If people don't get unemployed from existing jobs, how do they make out alone? Hindu economics will need an answer to this in the future. Another weakness of Bokare's economics lies in his opposition to large companies and an appetite for 'small is beautiful', but justification for this* is not provided in his work. There is a contradiction here as well, if large companies are hated, one means of establishing abundance, low costs and a source of tech development will be quenched. Hindu economics of the future should support a model where both large and small companies can exist mutually in a certain field.

In addition, some new practices to Hindu economics might be added. Previous iterations of Hindu economics have asked for interest free banking (ref) and so does Bokare. The necessities of interests in banking have been elucidated by Bastiat before in one his books (ref). While this debate might continue, we clearly see that there is a need for low cost capital. A compromise solution can be proposed here to allow community banks with low interest to operate. One such example is the foundation of sakhi mandals in Gujarat where women folk of families are prompted to save money and lend to anybody they know at low interests. Alternatively, this power can also be trusted to caste based orgs for loaning money out to their members. With local generation of capital, local problems in the trade might also be solved with local innovations, and this will give the Indian penchant of Jugaad some institutional support along with supporting research projects for local needs.

Another recurring theme that keeps featuring in Bokare's book is that Hindu culture promotes not the rape of nature as the west does but milking it. While the veracity of this claim against the west can be questioned, there is something that we should not miss. The traditional way of protecting mother nature for some time has been to simply block the consumption of some natural resources through use of force by building sanctuaries, national parks, etc. This results in displacement of people from the vicinity of such natural resources while needing a massive drain of resources to allow protection. At the same time, the need for the resource is not quenched, encourages illegal poaching and if the people displaced are not absorbable into the local economy, it leads to unemployment and poverty. This might be resolved by local management of natural resources. Adoption of these principles are already yielding success. Hindu economics can very well absorb this practice into its fold. Kautilya's Arthashastra has hints of a similar practice when he writes about maintaining special elephant forests to supply large numbers of elephants for the elephantry in the Mauryan army. 

A more complete reading of Bokare's book is still needed and probably I might discover more contradictions in Bokare's thoughts, propose solutions for them and review the book in the future. As for the field of Hindu economics, a new book by Subramanian Swamy is set for publishing this year, which seems to be promising for the field considering his expertise in both Hindu history and economics.

* = edited later to improve the flow of logic.

Friday, July 20, 2012

Aurobindo on Mahatma Gandhi's non violence

I generally don't like to do posts of these types, but I just couldn't resist myself this time.

source: (click) hat-tip @projectdharma on twitter

“Many educated Indians consider Gandhi a spiritual man. Yes, because the Europeans call him spiritual. But what he preaches is not Indian spirituality but something derived from Russian Christianity,non-violence, suffering, etc. The gospel of suffering that he is preaching has its root in Russia as nowhere else in Europe—other Christian nations don"t believe in it.”
“Purification can come by the transformation of the impulse of violence. In that respect the old system in India was much better: the man who had the fighting spirit became the Kshatriya and then the fighting spirit was raised above the ordinary vital influence. The attempt was to spiritualize it. It succeeded in doing what passive resistance cannot and will not achieve. The Kshatriya was the man who would not allow any oppression, who would fight it out and he was the man who would not oppress anybody. That was the ideal. Gandhi"s position is that he does not care to remove violence from others; he wants to observe non-violence himself.”

P.S.: We will hopefully see more of the above mentioned Kshatriya spirit when I read some books on my reading list on it (War in Ancient India, The wrestler's body: Identity and ideology in North India (which you can find in the link list under books in the right hand side bar of the blog) and a book on Vajramushti). Regular programming on Hindu economics needs more reading and will return next week.

Friday, July 13, 2012

Think tanking: What the Hindu right can do.

The article in the link (click) is one I found during regular Twitter forays on how Indian think tankers can learn from the development of the Prussian General Staff. Below is a paraphrase of what the authors are saying.

The authors of the article justify learning from the Prussians on two counts:
1) From the early stage of both the entities, both Prussia and India were and have been surrounded by existentialist threats from belligerent nations and they have to survive with a combination of military power and diplomacy. 
2) Both Prussia and India had and have a task to fulfill of developing an idea of nationhood among diverse peoples.
The article then goes on to describe the problems facing the ideas industry in India. According to a report they cite, India comes 3rd in terms of number of think tanks, but none of India's think tanks feature in the top 75 of the world and only one features in the top 5 think tanks of Asia, coming in at the 3rd place.

The major issue that Indian think tanks face is the lack of funding (of which there are 3 types: academic, contract and advocacy). India has a few contract funded think tanks (supported by government or private sector). This is due to the fact that our think tanks are centered on political and military affairs in which few in the corporate sector would have any interest. Most of the funding for our think tanks comes from foreign sources, which has the danger of getting a foreign agenda implanted in Indian policy recommendations. If however Indian think tanks go exclusivist, they will lose the foreign funding. Thus, we have a catch-22 situation.
The other issue is a questionable degree of autonomy. Each of India's armed forces has its own think tank. Although these are fed by civilian scholars, it's autonomy has been questioned just on the basis of its affiliation. The last issue is the lack of data and Indian think tanks have found it difficult to access relevant data. This allows career bureaucrats to remain central to policy-making and gives a cover in case of mistakes. Even if Indian think tanks are consulted, they would fail to provide sound advice in the absence of good data.
What to learn from the Prussian general staff:
The article then goes on to outline what Indians can learn from the Prussian general staff. A major strength of them was to recruit a small amount of brilliant analytical cadre which would be rotated among think tanks to give them the widest possible audience. This allowed the Prussian general staff to be the envy of world's armies for the next two centuries.
The general staff was divided into two parts, the great general staff and the field forces general staff. The great general staff at Berlin had the best and brightest of officers in the army vetted through a rigorous talent selection process and were trained to have a spartan work ethic and a secretive life. Retirees of this were sent to the field forces general staff to spread their ideas and implement them. The number of people employed at the general staff was at the most a little over a 100 people.
To summarize, the things to learn from them are as follows:
1) Small is better. - It always employed very few people for instance during the Franco Prussian war of 1870-71, the Prussian army had 16 officers and 119 people of other ranks.
2) To innovate, you need to be multidisciplinary - the general staff also tasked itself into learning about other fields, like civilian administration, diplomatic procedures, etc.
3) Think tanks work better away from public glare.

4) To spread ideas, employ a revolving door recruiting policy rather than webpage hits and media blurbs.
5) Release policy reports to an elite group of policy makers and not to just anybody. (We might have some issues with this, in monarchial Prussia it was pulled off easily.)

Consider that the project of having a central headquarters and regional quarters for the think tank is taken up by a prominent hindu volunteering organization and some of the above mentioned management issues, talent searches, etc. are implemented. The question that arises then and which is relevant to our blog is: "Can any hindu philosophy be the foundation of a think tank?" As the author of the article suggests, one of the ways think tanks can be funded is through contract funding. This is done by and large through corporate sources. For this to be necessary, the author suggests that think tanks need to focus on geo-economics. This field is defined as:

"Broadly, geoeconomics (sometimes geoeconomics) is the study of the spatial, temporal and political aspects of economies and resources." (ref)

However for a think tank affiliated to the Hindu right, there is an all new field called Hindu economics that hasn't been touched yet by many. The linked article provided mentions that this should be based on the concept of Trivarg (three reasons for action ) namely - Dharma, Artha and Kaama while also looking for inappropriate grounds for action such as anger, greed, delusion, pride, revenge, jealousy and hatred. Hindu economics is suggested to be normative whereas 20th century economics has been defined to be descriptive. What this does is that it releases the pressure from economics to study the individual as an entity that behaves in a programmed fashion. On the bright side, it promises to observe human relations and actions in a holistic perspective, aiming perhaps to look beyond the profit motive for human action that current economics endorses and improve the person and the society qualitatively.  On the down side, it suffers from some hair splitting against capitalist systems while not realizing that they are in fact very close to each other (both agree to private ownership of factors of production and free markets). The theory also sounds of as having a tendency to turn gradually into a full blown welfare state, of which we have seen some downsides before. But as a whole, it is a pretty nascent field and changes in basic doctrines and definitions will keep happening if think tanks take it up and hammer out issues.

The one thing that Hindu economics would desperately need is an elementary reason for innovation. Previous iterations of this have not fared well in this regard and appear to promote more of a status quo society. This is clearly out of place in our times where most countries value not labor, but innovations as an engine for the economy. If Hindu economics has to be funded by corporates, it must provide them with innovations in return. The Trivarg mentioned above can very well be elementary reasons for innovation in themselves. Self defense is also something that must be included as an inspiration for innovation. Jugaad as a concept might also be helpful, although it cannot fare as well as a thorough R&D project. In addition, creative destruction is an idea that Hindu economics should not consider sacrilege, it after all is not very different from the idea of Shiva (the secret might lie in being prepared for the redistribution of labour after creative destruction has been put into action). 

Once Hindu economics is perfected at home, it will be very interesting to see its implementation in geoeconomics. Giving locals of other places a good value for their money and respecting their local heritage is something that anybody can do. But transforming their lives through a unique economic model is something that should be the holy grail of Hindu economics and of Indian think tankers.