Classic

The Constitution is not our religious book

There are two things you can do with a book. You can either keep it closed or open it and read it. Those who argue that the Indian Constitution is now our religious book could be referring to the book in either its closed or open state. In its closed state, our Constitution certainly has qualities that a religious book requires. It is large and bulky, its cover can be nicely decorated and it looks good on a pedestal. Like all religious books, the unopened Constitution serves well as a symbol of our civic religion. along with the Flag, the Emblem, the National Anthem and Bharat Mata. Like any symbol, it can take on the meaning we see in it. As long as we don’t try to open it and read it, the Book serves well as a symbol of the rule of law as a foundational principle of our Republic.

Now, I would like to clarify that despite the sarcasm you might have noticed in the previous paragraphs, I sincerely believe that the Constitution, in its closed form, does serve a useful religious purpose. I believe in nationalism, and nationalism does take on a religious aspect; we do need symbols that depict our national pride, and as a symbol, the Constitution does have a purpose.

I strongly object, however, to the idea of the Constitution as a religious book. Let me rephrase that: I strongly object to the idea of constitutions as religious books. I have many disagreements with our Constitution, but this essay is not about those. It is not the purpose of a constitution to serve as a guide to people’s morality.

People who follow religious books use them as guides to live their daily lives. They derive their sense of right and wrong from them and judge others by the standard of those books. They may also act to compel others to follow the precepts laid therein. I have heard arguments that now that we have a Constitution, it should supersede all previous religious edicts and that this is the only book that should guide our sense of right and wrong. This is deeply mistaken and reflects a misunderstanding of the purpose of constitutions.

The task of a constitution is to constitute the state, not the nation. It establishes the state and grants it certain powers. It designates the organs of the state and specifies the distribution of powers between them. It also clarifies the limits of the powers granted and establishes checks and balances to ensure that the organs of the state do not exceed their powers. It also recognizes a bill of rights for the people that act as a limit to the state’s powers over citizens. A constitution that grants the state certain powers does impose a reciprocal obligation on the people. If the government, exercising its lawful powers granted to it by the constitution, makes a law, citizens have an obligation to follow it. But from this, it does not flow that morality is coterminous with the law.

If a friend calls you over for lunch and when you do visit, he orders you out of his house and sends you back hungry, we can agree that he has behaved quite badly. You may feel entitled to retaliate by complaining about him in public, boycotting him and persuading others to do the same. You may find that religious books have something to say about his behaviour – refer to the parts that speak about how guests should be treated.

I hope you also agree that the Law’s say in this matter should be limited. It is his house, and he has a right to turn you out of it. You’d have a legal case against him if he were under contract to provide you with food, or his actions left you so hungry and cut off access to food to an extent that it endangered your life, but otherwise, his actions were awful, but lawful. You have a right to criticize him for his actions and take the retaliatory actions specified above, and he can’t stop your criticism on the grounds that his actions were lawful.

If you believe that the Law should involve itself in your friend’s behaviour and your reaction to it, you are giving it a role that we normally assign to God, a role that He’s able to perform only because he is omnipresent, omnipotent and omniscient. The state cannot be omni all those things in practice. It cannot be omniscient or omnipresent. A constitutional scheme that grants omnipotence to the state is not performing its basic role of limiting the powers of the state.

I hope that the above example disposes of the argument that the Law should intrude into the domain of morality. The reverse of this argument is that the boundaries of morality should expand till they cover everything that the Law allows. Recently, the remarks of a seer caused some controversy. He had made some unkind remarks about those who ate non-vegetarian food. Some of those who outraged over his remarks claimed that his remarks were unconstitutional. Why? Because the Indian Constitution recognized religious freedom, which included the freedom to eat what people chose to ate, by making comments criticizing some dietary choices the swamiji had violated constitutional morality.

The contradiction in the argument should be clear rather immediately. It is the same logical fallacy inherent in the question “Is it wrong to be judgmental?” The same constitution that protected the religious beliefs of the targets of the seer’s remarks also ought to protect his freedom of conscience and the right to express his beliefs. There is no way to recognize religious freedom at that level without circumscribing other freedoms of others. In practice, this is the only way to enforce the idea that the extent of morality is what Law allows.

There is a third interpretation of constitutional morality. This says that while constitutional morality ought not to be enforceable, but we should follow it in spirit. This means that we, and not just the state should practice secularism – not by enjoying the religious freedom that the state guarantees, but by doing the opposite of that – by keeping religion strictly private, by not wearing religious symbols, and so on. If that is the case, then presumably this should apply to all constitutional principles. Does it also apply to the idea of equality? Does loving your children more than that of others violate constitutional morality? Does having close friends violate it? If a company treats certain customers who pay extra as premium customers, does it violate the constitutional principle of equality?

The principle of equality actually means equality before the law. I am allowed to love my children and I am allowed to have friends. But if I am a public official, constitutional morality requires that in my actions as a public official, I treat them the same as other citizens. This is true for every constitutional principle. The constitution ought to function as a religious book for government officials. It lays down their Dharma. It is wrong to expand the definition of public officials to cover every action by a private citizen in public life.

For actions by private citizens, the boundaries drawn by a constitution are only the outer edges of what is morally permissible. Yes, the constitution overrides all religious books – if your religion says that it is permissible to kill apostates and the constitution says that killing is forbidden, the latter should prevail. But a constitution that uses this overriding power to intrude into every aspect of religious and personal life is no longer a constitution.

Feedback Decoded

Feedback Decoded cover

Feedback is valuable. It is also expensive. It is one of those things that gets costlier the richer you get. As you get richer, more successful or famous, the number of people who will give you candid, unvarnished and actionable feedback declines. Giving feedback is a difficult skill to master. For a person who isn’t doing well and evidently needs to improve, you will find that there are many items of feedback that you can put down on paper. When you try to deliver this feedback though, you tend to run into the Dunning-Kruger effect. The recipient is blind to his shortcomings and thinks that he is doing an adequate job, and the harsher the feedback, the more defensive he will get and the more likely it is that he will spend time thinking that of your motives than of what he needs to do to improve.

Feedback Decoded cover

A person who is doing well is actually likely to be more receptive to feedback, but finding the areas to improve upon is a daunting task, which is why, I suppose, a star player’s coach gets paid so much. One of the tensest conversations I had was with a high-performing direct report who was surprised to receive a lower rating than he expected. His argument, quite surprisingly, wasn’t that he was a great performer, but that I hadn’t pointed out the flaws he was acutely aware of himself, while my own reasons for rating him lower were bullshit. I quite appreciated his honesty. It was one of the most valuable items of feedback I have received.

There are many other things that make giving feedback difficult. Your own strengths and blind spots add to this difficulty. If something is your strength, chances are that you will underestimate how difficult that thing is for others. Your blind spot makes you blind to others’ strengths or weaknesses. You also have to ensure that the feedback you are giving is relevant to the recipient – Telling me, for example, that I have poor dancing skills, is an example of feedback that is quite true, but quite irrelevant to my career path or to my personal aspirations. And even if the feedback is relevant, is it actionable? What exactly can I do about my dancing even if I intend to improve on it?

Neelacantan Balasubramanian, or Neel, as I and everyone else knows him as, has written a great book that addresses these and many other challenges with the feedback process. Neel was my classmate in junior college and is one of the most creative guys I know. The book is a primer on Feedback in a workplace setting, made all the more relevant by the fact that it has a special focus on uniquely Indian cultural challenges around delivering feedback.

I am delighted to learn that Neel is as much of a dislike for the sandwich method of delivering feedback as I do. When criticism needs to be delivered, it never makes sense to me to have it delivered stuck between two slices of praise. Yes, the intent is to make the the criticism more palatable, but the sandwich method scarcely achieves this. Either the primacy and the recency effects kick in, in which case the meat of criticism is never tasted, or the emotional impact of the criticism is such that the softening impact of the praise fails to register.

A much better approach, Neel points out, is to have delivering unvarnished feedback built into the organization’s culture. Neel prefers the acronym CORBS for how one should deliver feedback, in which the “R” stands for “regular”. If feedback is delivered regularly in an organization, then praise and criticism will come in as part of the package. A meeting invite with feedback as the subject will not evoke the terror of an upcoming dental appointment. An item of feedback should be clear and specific – the C and S of CORBS. This can be achieved by the SBI method – by focusing on the situation, the behaviour of the person in response to that situation, and the impact that the action had.

CORBS does call for the feedback to be “balanced”, and this can be achieved not be striving for it within each feedback session, but by the overall regularity of the feedback. Of course, the feedback should be owned by the person who is delivering the feedback – easier said that done as the temptation to fire by placing the gun on someone else’s shoulder – especially that of the top management – is strong, but this is something to strive for.

If you are like me, you may have found it difficult to deliver praise – not because I am a hypercritical person, but because I find criticism a lot more actionable. My instinct is to regard praise as cheap talk – a lot of words repeating something my interlocuter already knows, while criticism is actually useful conversation, because from it flows things that one can improve upon. For people like me, the framework of the Johari window will prove useful, because one of the quadrants covers the strength that is hidden from the self, but visible to others. The useful takeaway here is that even your praise can and should be insightful and actionable.

How could I have handled the situation with my direct report better? He had blamed me for not pointing out the flaws that were visible only to him. Now, it seems a little unfair to expect me to do that, but perhaps another of the concepts in the book can help me be a better manager. Ultimately, the intent of feedback is not to teach but to learn, and sometimes the recipient of the feedback is served better by being asked questions and being left to find out answers for himself. The 4×4 matrix with Problem-Solution and Ask-Tell as axes is a useful guide to navigate the situation, and help both the giver and recipient of the feedback co-create (I hate the word, but it does seem apt here) actionable insights that both can own.

I did not mean this piece to be a summary of the book, and it is not. The book is packed with many helpful and actionable insights that I cannot summarize here. I do mean this to be a recommendation. Go ahead and buy Feedback Decoded. It is available in paperback as well as Kindle editions on Amazon.

The Network Effect doesn’t make you invincible

Unlike Socialism, which fails in similar ways wherever it is tried, Capitalism gives us new things to worry about every generation. In a dynamic economy, companies from different industries threaten to become monopolies every generation, giving us new reasons for why this time’s threat is different from that of last time.

The threat our generation faces is apparently from monopolies that benefit from network effects. We are particularly scared of social media companies that exercise control over freedom of speech, who cannot be dislodged from their monopoly perch because they have the power of the Network Effect.

The Network Effect

You are trapped in the Network Effect when being part of the network may not be your first choice, but you have to be there because all your contacts are there. Your contacts are there for the same reason. It is a collective action problem. There may be a network that all of you would move to if only someone could coordinate, but that is an impossible task.

So everyone hates LinkedIn but everyone is still on it because all their professional contacts are there. They are on Tinder because all potential romantic partners are there, on Facebook and Instagram because all their friends are there and on Twitter because all their enemies are there.

The second reason why all of you are still on the network is that you all would like to move, but each one’s choice is a different one, so you stay on the current one as a compromise.

Network effects are self-limiting

It is a meme, popular among young women, to show four photographs of themselves representing how they wish to appear on different social networks – a sanskari look on Facebook, a professional look for LinkedIn, an exotic photograph of themselves for Instagram, and a sexy look for Tinder. A Twitter look usually does not appear in this set of photos, presumably because people rarely have photos of themselves having a meltdown and screaming at people.

This meme illustrates a truth about social networks and network effects. Network effects aren’t always positive. There are some networks you would go to because all your friends are there. For some, that is a reason to avoid that network. No teenager wants to be in the same social network as his parents, as Facebook is learning. As networks grow too big, there is a real possibility that they become infrastructure – just as email is, or they are so crowded that no one wants to go there.

The meme also teaches us that there is a market for more than one social network. In theory, we would like to have different social networks for different purposes, just as the young woman in the meme has, the better to ensure that her sanskari look doesn’t leak into Instagram and her love-life is not revealed on Facebook.

The vector of attack

In any industry, if a challenger wants to dislodge the dominant player, taking it head on is rarely the right way. The better way is for the challenger to attack an area where the dominant player isn’t noticing, doesn’t consider it worth its while, or is unable to respond.

The limitations of the network effect suggest such a vector of attack for challenger social networks. You won’t dislodge Facebook by building a better alternative to Facebook. You will do it by finding a group of people who want to be on a different network from the others, or a theme that a network of people can coalesce around, and begin your attack from there.

In practice, this is not easy to do. Managing multiple social networks is hard, which makes it hard for a new social network to gain a foothold. The challenger social network, in its initial phase, needs to have a well-defined theme. If you have ever tried to moderate a mailing list and tried to keep people to stick to particular topics, you would know that it is difficult to do. It is almost impossible to do at scale. People want to do fraandhip on LinkedIn and they use Facebook for professional networking. If it were easy to do, we wouldn’t have been having arguments about network effects in the first place.

But it isn’t impossible. There surely are some natural communities you can begin with – the community of youth is one obvious way, but I am sure there are others that are not so obvious. The Network Effect isn’t some unprecedented power that successful companies of this generation have, a power that makes them so strong that we have to reevaluate everything that we have learnt about the wisdom of breaking up monopolies. It is a power. It is a moat that is difficult to cross. It does not make you invincible. One day, the moats will be crossed, and this generation of companies too shall pass into oblivion.

But Facebook is buying them all up!

But isn’t Facebook is buying all the challenger social networks? It bought up Instagram and WhatsApp! If the dominant players keep buying up the challengers, who will be left to challenge the monopolists?

Well, calm down. A monopoly isn’t much of a monopoly if it takes work to maintain it. If the monopolist has to constantly scan the market for potential threats, move nimbly and introduce new features to maintain dominance or acquire any companies that can pose a threat, it isn’t enjoying a natural monopoly.

Every organization gets old. Once it gets old, it gets flabby. The founder either moves on or doesn’t have the same instincts he used to. The people working there don’t have the same drive they do when young. The organization gets too bureaucratic and procedure oriented. New ideas are stymied by turf wars. It doesn’t move as quickly to acquire or crush competitors as it used to. It is slower to introduce new features, or even to copy them from competitors. It doesn’t see emerging threats as quickly as it used to because it is too focused inwards and too focused on existing customers.

This has happened to every organization in history and it is a fair bet that it will happen to the companies that run social networks as well. I believe that we should be concerned about monopoly power only if it lets the old and flabby organization stay a monopoly long beyond its sell-by date. I don’t see evidence that this is happening. An hour is a long time on Twitter, but in historical terms, the current social media companies haven’t really been in a dominant position for long.

Social media will destroy democracy

We are all very concerned about the effect social media has on society, our political system and our democracy. We are all very concerned that companies that run social media will dominate the discourse and decide who can say what. We are all very concerned that social media companies are monopolies. My belief is – no, they aren’t monopolies. No, they don’t dominate the discourse and determine who can say what.

Yes, social media will destroy democracy, but if it is any consolation, it won’t be through the monopoly power of the companies that run social media.

Postscript: Why isn’t there a social network in India?

I’ve argued that one way to challenge the dominant social networks is to find a group of people willing to break away and form their own network, perhaps around themes that has little overlap with those of the larger network. Now, there exists a large nation named India. It has a vast population that speaks many different languages. It has many interests and cultural issues many of which overlap with the rest of the world and many which don’t. While this country is fairly well-connected with the rest of the world, it also has many people who should be willing to join a social network that caters to their interests. It also has a government with a lot of influence, and interest in supporting an indigenous social network. If the officials of this government begin extensively communicating on a challenger social network from India, it should attract a nucleus of influential people who can seed the growth of this network. It also has skilled programmers and a startup ecosystem that can build a new network. Could the next social network come from India?

Just kidding. It won’t.

Should you vote for your PM or your MP?

Many people are arguing that because India is a parliamentary democracy, voters should be voting to elect members of the Lok Sabha, and that it is an error to vote on the basis of whom they want to see as Prime Minister. Such fidelity to the original tenets of parliamentary democracy is touching in a country that has amended its constitution over a hundred times in seventy years and is currently run according to the whims of its judges. This argument also reminds me of one of the two dumbest features of the United States Constitution. 

I am referring to the Electoral College. The US Constitution, as it was originally written (actually, even in its current form) does not provide for direct election of the president by its citizens.  The president was supposed to be elected by an electoral college. Each state would be able to send a certain number of members to the EC, the number being equal to the sum of the numbers of the representative and senators from that state. The method of choosing the electors was left to each individual state. The electors could be chosen by the state legislature, and I believe this was the method adopted by most states during the first few decades of the republic’s history. The electoral college was expected to gather, debate and then vote for their choice of candidate for the president. 

The existence of the electoral college is the reason why the vote of the citizen of a smaller state carries a larger weight than that of a larger state. Every state gets 2 senators regardless of its size and it gets to send at least one representative even if its population may be smaller than the average congressional district, which means that a state that has a population 1/20th of that of a state that sends 20 representatives gets to send 3 electors as against the 22 that the larger state can send. 

But this is not the reason why I believe that the electoral college a dumb idea. To understand why it was unworkable, take a look at how it evolved to its current form. It changed in 3 ways, 2 of which should have been entirely predictable to a political scientist

  1. States began to bind the electors – i.e. they started making laws saying that the electors should vote for particular candidates of their choice.
  2. They started to mandate that all  electors from their state vote for a particular candidate
  3. One by one, all states devolved the “choice” of  electors to the voters of the state. 

The first 2 of these should have been completely predictable. Firstly, why spend time and energy on electing a bunch of people whose only job is to confer among themselves and then elect another person, when you could spend that time and energy in deciding on the person you ultimately want to see elected? Perhaps the founders of the United States believed that discussion and debate among the electors would lead to decisions of better quality, but electing a president is not like writing a constitution, making laws or negotiating some kind of agreement. If you have to do any of those things, by all means delegate the task to your representatives, because there is much scope for discussion debate, give and take, and compromises – all good reasons why it was a bad idea to hold a referendum on Brexit. There is very little scope for compromise on the question of who should be the President – you can’t mix the head of one person and the heart of another and construct a compromise president. Perhaps you can bargain over who should be the vice president, over cabinet positions and over what policies the president should follow, but given that cabinet members can be dismissed at will and policies can be changed at will,  and given that the Electoral College disbands itself after the election, there would be very little scope for the Electoral College to hold the president to any compromises he agrees to. It should have been completely predictable that the election of electors would become an election of the elected. 

The second outcome was also predictable, given the first. In theory, states could have adopted systems where the ticket was split – perhaps in proportion to the votes in the state legislature. In fact, in the early decades of the republic, many states did so. But a state that chooses to split its ticket is much less valuable to a presidential candidate than a state that gives all its votes to one candidate. Once a few states started adopting the general ticket model, everyone else was compelled to follow suit. 

The devolution of the vote to the ordinary citizens wasn’t a predictable consequence of the design of the Electoral College, but seems to have followed from the cultural DNA of the United States. At least in the 19th and till the early 20th century,  that nation seems to have had a strong bias for direct elections.

 I recount the story of the Electoral College of the United States for a couple of reasons. The first is that questions about what constitutes the essence, the basic structure of a republic, is difficult to pin down. You still hear many Americans defend the Electoral College, but when they do, they do not refer to its actual design. Instead, they argue, in rather vague terms, that the College is the reason why the United States is a republic rather than a democracy. It is not quite clear what they mean by that. These days, the design of the EC affects democracy in the US in two ways – first by overweighting the smaller states and second by giving all votes from one state to one candidate or the other depending on who got the majority in that state. There may be some justification for the first. I am not sure why the second is a good thing, but can think of many reasons why it is bad. It must surely contribute to the polarization of politics on geographic lines.  It is rare for anyone to argue that the electors should vote like actual thinking people rather than dummies. Recently, the Americans elected a mentally unstable person as their president, and there were some murmurs that this was exactly the kind of situation for which the Electoral College was designed – that the electors should vote as responsible people and not as bound agents, and override the choice the Americans seem to have made. It should be immediately obvious why that would have been a terrible idea. No matter what the constitution says, the legitimacy of democracy depends on everyone following the rules that everyone agrees are the rules. The voters did not vote for the electors. They voted for the man or woman they wanted as president. A set of essentially random people overriding this choice would destroy the legitimacy of the republic, no matter what the original design of the Electoral College was. 

The second reason is that the experience of the Electoral College has some relevance to our parliamentary system.  Our chief executive is elected by the Lok Sabha. You could say that it essentially functions as a permanent electoral college.  Now, many of you will protest my characterization of the Lok Sabha as a permanent electoral college, and will argue that our Sansad is a legislature, though I am sure you will agree that the lower house also functions as an electoral college. A textbook answer to the question: “What are the functions of our Sansad?” would be: 

  1. Makes laws
  2. Exercises oversight over the executive
  3. Members of Parliament act as a bridge between their constituents and the government
  4. Elects the Prime Minster (Lok Sabha only)

But how is it in practice? Our parliament doesn’t actually make laws in the sense that the Congress of the United States does. That body actually has primary responsibility for making laws. Senators or representatives draft legislation, the Senate and the House form committees to consider them, amendments are proposed, there are negotiations among the legislators, and this back and forth determines the final shape of the law. The executive has a significant say in this process – but it has to exercise its say mostly informally – through its influence over the legislators and by the power of the President to appeal to his popularity. The formal power the President has is the threat of the veto, but the veto power is, by definition, not an agenda setting power.  I think that it is fair to say that no other legislative body in the world, and in particular no legislative body among parliamentary democracies, exercises that kind of power. In most other countries, the government sets the agenda and writes the acts of legislation, the legislature debates them, amends them as needed and passes them into law, or not. In India, a bill not drafted by the government being turned into law is so unlikely that I believe it has happened only once in its history. The parliament has next to no input to drafting or amending legislation, and while members of parliament have a vote, that vote is entirely on party lines. Members of the ruling party support all bills introduced by the government, and members of the opposition oppose it if their party decides to oppose or support if it does. 

The oversight function fares better, if only slightly. Members of parliament do have some freedom to question ministers of their party, especially when it happens behind closed doors in parliamentary committees. 

The only thing that really differentiates our members of the Lok Sabha from electors of an electoral college is the third function – which is to stay in contact with the people, listen to their grievances and communicate these to the government. In fact, India has introduced a weird innovation in the form of the MP Local Area Development Scheme that allocates funds to members of parliament to carry out what are essentially municipal schemes. Many people who believe that we should vote for MPs rather than the PM also believe that the function of a member of parliament is to carry out local development work in the constituency.  Going by the original constitutional design, the latter is just as out of scope of an MP’s remit as is the former.  The only reason MPs are tasked with these things is that our municipal governance is non-existent. 

It is quite clear that the most important task of the legislatures in India is to elect the chief executive, overshadowing their ostensible purpose, which is to legislate. For a voter whose concern is to see certain laws passed and policies executed, the rational thing to do is not to pretend that you are electing legislators, but to model the problem as electing a prime minister, and the members of parliament as members of an electoral college. The alternative model is that of the MP as a feudal patron with the power to dispense government largess and who acts as a conduit for your grievances. The model of an MP as a legislator doesn’t really make sense. For one thing, MPs do not legislate in practice. Secondly, even if by chance one constituency decides to elect an MP who believes that his main task is to legislate, it is pointless unless he is able to coordinate this with a couple of hundred other MPs. 

If you think through this, it should not be surprising – indeed, it should have been completely predictable, as predictable as the evolution of the electoral college was. Some people will argue that the law-making powers of our legislatures began to atrophy due to the anti-defection amendment. I agree that the amendment is a bad idea and did contribute to the worsening of the independence of our legislatures, but the root cause lies with our system of government. If you were designing a system, and you went: “We will have elected legislatures. Their main function is to make laws for the executive to implement. And oh, they will also elect a committee that will actually run the government.” a perceptive political scientist should have been able to point out that this system would inevitably lead to the latter function overshadowing the former, especially in an era where the development of mass communication makes presidential politics possible. The parliamentary system did not come about because someone thoughtfully designed it. In countries where the parliamentary system originally evolved, the monarch held executive power, the legislature slowly wrested law-making powers from him, and eventually evolved to take on executive power as well. There was a path dependency to this. Because the traditions of the legislature had time to evolve before there was a prime minister to exercise executive functions, the legislature in places like Britain does have some independence. India’s Sansad never got time to evolve that kind of independence. It came bundled with a popular prime minister. It is therefore inevitable that it grew to be a kind of glorified electoral college.  If you need that to change, give the voters separate votes – one for a chief executive and one for their representative. If you insist on giving only one vote, don’t be surprised if they decide to use it to choose their chief executive. 

Black Money and Chaos

The chaos created by demonetization is not because of a failure in implementation. It could not have been avoided by calibrating ATMs on time. It is a function of how much of India’s black money is held in cash.
To understand this, consider a thought experiment. Suppose that there was no cash black money in India, and yet the government, for some vague reason, announced demonetization. Would there have been a similar level of chaos?
Or consider another thought experiment. Suppose that the government announced demonetization, but also announced that the 500 and 1000 rupee notes could be exchanged at the bank without limit, no questions asked. Would a similar panic have spread through the economy?
My answer to both questions is no, and it would stay no even if you told me that in both thought experiments, the government was as unprepared with the task of ATM calibration as in the real world. That is because in both those situations, shops would continue to take the demonetized notes even though it would be illegal to take them.
In the real world, shops are refusing to take those notes, not because it would be against the law (we aren’t a very law-abiding society), but because of the difficulty of converting them to legal tender. This difficulty is because of the existence and quantum of cash black money (thought experiment 1) and the difficulty of laundering it (thought experiment 2).
Because of these two factors, the demonetized notes are trading at a discount. Because of this discount, there is a huge impact on the economy. Remember that the black economy is also a part of the economy, and a hit on the black economy is necessarily an attack on the economy, and the people affected aren’t necessarily, or even primarily the holders of black money.
Another way to say the same thing is to note that the discount on the demonetized notes affects everyone, not just those who hold unaccounted money. It affects daily wage labourers, it affects the supply chain for food, everything.
My initial reaction to demonetization was that it was a mildly positive move, but ultimately more of a PR stunt rather than one that would have a large impact one way or the other. That is because my thinking ran on the lines of ” Who keeps their black money in cash?” I thought was that people mostly maintained only their working capital in cash, and as a great believer in the efficacy of markets, I thought that money laundering channels would quickly take care of the black money that was in cash. The net result would be a PR victory for Modi, a one-time shock to the cash economy and a net cash transfer to the poor, as it would be the poor whose Jan dhan accounts would be used to launder all the black money.
From the chaos that is occurring, it appears that I was wrong about how much black money is stored in cash. Of course, I don’t have a baseline level of how much chaos was expected to compare the current level with. But the point is that if you believed that a lot of black money is stored in cash (as against circulated as working capital and laundered before storage) you should have expected a much higher level of chaos.
A full model of how much chaos to expect from the demonetization would consider:
  1. How much black money is in cash
  2. Efficiency of the laundering channels that will develop (The more efficient the channel, the quicker the economy will recover)
  3. How much of the remonetized cash will be sucked back into storing black money
  4. How’s quickly the Banking system can be remonetized with the new notes.
It looks like Modi has a similar mental model of demonetization. The government has flipped and flopped multiple times, but it has been consistent in one thing, which is that it had imposed ever tighter restrictions on changing money over the counter.
This makes no sense if you believe that the folks changing old 500 notes are the unbanked poor, but makes complete sense if you believe that it’s a channel to launder demonetized notes into remonetized ones AND if you believe that those notes will go back to black money storage. The problem though is that anything that hurts black money storage (#3) will also hurt the circulation of black money (#2) and this puts pressure on #4 even more.
I don’t know if this experiment will succeed. As I write this, it is the end of November and the ATMs around me are empty. If people are unable to withdraw money when they get their salaries in the first week of December, I expect hell to break loose.
But what this experiment has taught us is not, as one article put it, how much India runs on cash, but how much of India’s unaccounted money is stored in cash.

The Women’s Reservation Bill is a Bad Idea

A bill to reserve 33% of seats in legislatures for women would be a bad idea at any time; it is a terrible idea when a popular leader like Modi, with tendencies towards authoritarianism, is Prime Minister.

A characteristic of the Parliamentary System is that it tends to weaken the power of parliaments over time. This is particularly true when the nation is led by a strong and charismatic leader who can run a presidential-style campaign. In the General Election, voters want to elect this leader as Prime Minister, but his name is not on the ballot. Instead, they have to vote for the leader’s candidates in their constituencies. This means that the candidates owe their careers to this charismatic leader, and they don’t have to be very capable leaders themselves.

What I have outlined above may be called the Lamp Post Theory of Parliamentary Democracies, after the popular saying that Nehru was so popular that even a lamp post standing for the Congress had a good chance of election to the Lok Sabha.

Now, India is such a large, heterogeneous and unpredictable country that lamp post phenomena have not lasted for long. Yes Nehru was very popular, but towards the end of his career he was faced with strong grassroots state leaders who were electing chief ministers he was not fully comfortable with. Indira Gandhi managed to gain dominance over her party and the country. This, she managed by stamping out local leadership from the INC. Eventually, she too lost popularity, and her party is paying the price for not cultivating strong local leadership.

After the recent General Election, much analysis has been wasted on whether there was a Modi wave. I believe that the answer is obvious. Modi was very popular, probably the most popular leader India has seen in the past three decades. But he could not have won the elections without skillful alliance-building. He was able to negotiate alliances with other parties like the TDP from a position of strength. His popularity attracted other popular local leaders, both within and outside the BJP, and they worked with him rather than at cross purposes.

So yes, although Modi is a strong leader and has been handed what is a decisive mandate by the standards of the past 30 years, he has not acquired the kind of dominance Gandhi did. The BJP still has a mind of its own, the RSS is a very autonomous body and local leaders are still important to win elections.

If I were Modi, how would I move to acquire that kind of dominance? Modi has already moved to gain control over the BJP. He has forced some leaders into retirement, he has denied tickets to potential thorns on his side. But he has had to make compromises. He couldn’t sideline Sushma Swaraj, for example.

That is where a Women’s Reservation Act will come in handy. The Act will reserve 33% of seats in all legislatures for women, and these seats will change every election.

If you are a popular local male leader, there is a 50% chance that your seat will get reserved for women in the next election. You are at the mercy of your party’s leadership to provide you with a seat elsewhere, a constituency where you may not be as popular. Right now, your popularity provides insurance against that happening. If the party leadership denies you a ticket, they risk losing that seat, either because you can stand as an independent and win, or because the opposing party can put up a strong candidate. But now, because the seat is reserved for women, the party leadership can be assured that all candidates will be newbies. As a result, the importance of the local leaders will reduce and the charisma of a strong leader will be what wins elections.

What about women leaders? Their lot will be worse, for two reasons. First, they will be shunted from constituency to constituency and will not be given time to build a local base. They will be perpetual newbies. This means that they will be even more dependent on the national leadership to win elections. Second, because they will end up always fighting other newbies, they will be unable to build up a profile – for example the fight Smriti Irani put up against Rahul Gandhi, which raised her profile significantly, will be a thing of the past.

All MPs will be at the mercy of the party leadership. And when the party leadership is controlled by a popular and charismatic leader like Modi, you can imagine the consequences.

For these reasons, the Women’s Reservation Bill is a bad idea. The Anti-Defection Act, passed 30 years ago, grievously injured parliamentary democracy in the country. This will kill it off completely. We will end up with presidential democracy without a legislature to check the powers of the chief executive. I am in favour of the presidential system, but this is not the way to achieve it.

Regulating my son’s Subway Surfing

My son loves playing Subway Surfers, and he is very good at it. I have been trying to put some sensible limits on his playing, and I have realized that I am faced with the same set of considerations I’d face if I were a regulator responsible for reining in an industry.

First, I need to know the game to be able to set my limits, if for no other reason than that I wouldn’t get my son’s respect if I didn’t. When I told him that he could play “five games a day”, he immediately corrected me to tell me that I should say “five times” because in his mind, “five games” meant five distinct games, not playing the same game five times.

Now, to know the game, I need to be at least mildly interested in the game, which means that I must have played it. But now, my limit setting is influenced, sometimes by my desire to take the tab away from him and play it myself, and other times by my thrill at seeing him play so well and wanting him to play more. An uninterested observer like my wife would be disinterested enough to be unswayed by these considerations, but she wouldn’t know enough to set good limits. This is exactly the kind of dilemma that one faces when one regulates industries.

I had started with the limit of five games a day. But soon I found that I needed to be dynamic and flexible. Sometimes, he’ll make an uncharacteristic error and get out of that turn early. To assuage his disappointment, I tell him that that turn wouldn’t count towards his limit of five games. Recently, school has started and he is unable to play on weekdays, so I increased his weekend limit to ten games. Sometimes I just let him play a few more games when he has to collect a certain targeted number of coins to make a purchase or something.

Such dynamic and frequent changes violate the principle that governance should provide consistency. If my son were a devious character, he would have learnt that the limits I set can be violated by protesting loudly. He isn’t, and that makes it easier for me to set sensible limits. Plus, he trusts me to do the right thing. In regulatory systems where the regulator isn’t clean and fair minded, providing the regulator with flexibility to set limits is a recipe for disaster.

Now, it so happens that I have only one son old enough to play Subway Surfer. If I had more than one son to regulate, my regulations would face issues of fairness very soon. If I had were regulating a whole bunch of Subway surfing children, my regulations would also face the problem of scale. I wouldn’t possibly have been able to tailor regulations for each kid. I would have to set one limit and be done with it.

Finally, there is the question of monitoring compliance. How closely should I monitor? Should I depend on my son’s self-reported count of how many times he has played or should I sit next to him and monitor? Like all good kids, my son lies and cheats on occasion, and sometimes he loses count of how many times he has played. Sitting next to him may suck up time and increases the risk of regulatory capture (I am tempted to play myself). I have learnt that letting him comply by himself by imposing a penalty for non-compliance works for him. It may not work for a different type of kd, with a different equation between the regulator and the regulated.

A Little Tale of Corruption

This story played itself out back when I was a teenager.  The two protagonists, let’s call them A and B, were locked in a dispute. The dispute was about how the affairs of a particular association ought to be run. Now, it is somewhat important to mention that the association in question was a caste-based association, and the specific caste in question is Brahminism. However, I feel some regret having to mention this, because this fact will prejudice the minds of many of my readers. I, therefore, ask them to try and ignore the caste-based nature of the association and treat it like any other voluntary association of citizens. The import of the story and the morals to draw from it will not change significantly.

With this caveat in order, let us return to the story of A and B. Now, as it happened, both A and B were government employees. A was known to be extremely corrupt. Not a file passed through his desk without a bribe having to be paid to him. His extra-income showed up, not in his lifestyle, but in the assets that he was known to possess. He had no flashy taste in clothes and he had no unbrahminical “bad habits”. His wife, a genuinely good woman, wore much less jewellery than the ordinary middle-class woman at weddings. However, it was well-known that he had accumulated a lot of money. He had used it to buy up houses and stock up enough in his benaami bank accounts to last his descendants seven generations.

 

B, on the other hand, was known to be an honest man. He had never taken a bribe in his life, and his family’s lifestyle reflected this as well. For long, they lived in the same Central Government Quarters that his employer provided, and while his family did eventually achieve its ambition of buying  a modest house, at the time of the story, they had been unable to achieve it. B was widely reputed to be uninterested in wealth – and rumour has it that he was also uninterested in family life, believing himself to be cut out for higher pursuits, one of which was the association that is the subject of our story.

 

Let us now turn our attention to the subject of the dispute between the two men. We will not get too much into detail, but suffice it to say that the rights and wrongs of the dispute were exactly what one would expect from the character sketches of the two men we have drawn above. A had monopolized the affairs of the association, and it was widely thought that he took a cut from the association’s budget. To be fair to him, however, it was also widely thought that the association was in fact being run well, and its members regularly reelected him. B was proposing a change in the association’s by-laws that would bring in more transparency and bring in some degree of fresh blood in the association’s managing committee.

 

The dispute between the two men got personal, as these things frequently do. Apparently A struck the first blow – the details of which I do not remember. In response, B retaliated by calling in his contacts – he had many – and getting the CBI to open an investigation of A’s affairs. (“CBI” was the term used in the conversations I listened in on. It might have been some other investigative wing.)  The CBI carried out a series of raids on A’s property.

 

The response to the raids among the association’s members – and here I think it is relevant to point out that almost all of them were middle-class, educated Brahmins – was mixed. Some thought that A had got his comeuppance. Many others felt that B had gone too far in involving the police in an internal dispute.

 

In any case, these raids shook up A and made him ready to open talks with B for a possible compromise. After  extensive discussions, a “compromise” was reached, which can better be described as a surrender. A agreed to the rule change that B wanted – and B used his contacts to call off the CBI raids and hush up the investigation.

 

I will end this story here.  There are of course many lessons to draw from this, and if  I start off on them, the size of this post will double, so I will leave those for a subsequent post. But I must mention that this story tells us almost everything we need to know about the Indian’s attitude towards corruption, and the Indian’s conception of honesty.  Of course, we will get a Jan Lok Pal  who will fix everything.

Shruti on Bhopal

If I were to write a post on Bhopal, I would write almost exactly what Shruti has written.

You can, if you wish, paint Bhopal as an example of rapacious profit-seeking corporations putting profits above human lives. You can argue that thatzwhy we need strong regulations. But your argument will run into the problem that Bhopal occurred in 1984, in the India of the license-permit-quota raj.  Not all the permissions that Union Carbide had to seek, not all the inspectors they were forced to bribe, could prevent the disaster from occurring. Once it did occur, the paternalistic State, instead of looking out for its children, sold them out.

So, if the failure of the free market makes the case for regulations, does the failure of regulation make the case for loosening them? Well, that’s not what usually happens.  We’re more likely to hear that Bhopal makes the case for strengthening the regulatory framework.  We don’t need deregulation. We need stronger, more effective regulations, the argument goes.  If we don’t have strong regulations, what is to prevent corporations from creating a Bhopal every other day in pursuit of profits?

Well, strict liability and the tort system, for one. If we could sue the pants off any company that dares to impose harm on third parties, we would see fewer industrial disasters.  If we junk half our regulations and use the resources freed up to modernize our courts so that they deliver verdicts in months rather than decades, we will be much, much better off than we are. Shruti notes in her piece that the Indian government actively worked to minimize the compensation victims could claim from Union Carbide. This phenomenon is familiar, and has a name – regulatory capture.

What is Common To? Answered

Six months back I had asked:

What is common to Sanskrit, Brahmin, Sion and Matunga?

The answer is that they are all Indian words written in English that would have been correctly pronounced if they were pronounced the way a native English speaker would  pronounce them, but mispronounced because of  the way Indians pronounce English.

In “Sanskrit” and “Brahmin”, the “i” is supposed to be pronounced the way it is in “Sir” and the pronunciation would have been correct. Instead, we Indians pronounce them as “Sanskreet” and “Brahmeen”  thinking that we are anglicizing them.

“Sion” comes from the Marathi word “Sheev”, which means border.  (Sion is the northern border of Bombay city. Beyond it is suburban Bombay.)  It is supposed to be pronounced “Seeon”. But everyone pronounces it “Saayan”.

If  you were to pronounce the “u” in “Matunga” like the “u” in “but”, you’d be close to the original name of the suburb, which is “Mathanga”, so called apparently because an elephant stable used to be housed there. But everyone calls it “Matoonga”.

Incidentally, the last two examples tell us something about the original inhabitants of Bombay, viz. how few actually exist. They also tell us a lot about the state of Hindi and Marathi scripts in Bombay till recently.

Pizza Delivery Incentives

Domino’s likes to announce that it doesn’t penalize its delivery boys for not meeting its 30-minute guarantees. It says so on its website, on its menus and the statement is even tagged on the uniforms of said boys.  This seems like a good strategy to have – after all, you don’t want your delivery people to cause or suffer accidents. It is also a good strategy to announce.  Apart from the good reputation you get, it also stops the delivery guys from giving a sob story and getting sympathetic customers to condone delays – this is assuming that Domino’s wants data on delivery performance so that it can track the efficiency of its operations.

Of course, saying that they  won’t penalize delivery boys for bad performance is not the same thing as saying that they won’t reward them for good performance. The two aren’t the same, because of the endowment effect. Then again, you shouldn’t reward them every time they do an on-time delivery, because it will effectively amount to the same thing. You need to reward them for aggregate performance.