| It is by Gene M Grossman of Princeton and Elhanan Helpman of Harvard, and it is an absolute masterpiece, if only because it is such a perfect fit. Dr Singh, who has worn the shoe twice, once as finance minister and now as prime minister, will enjoy it. |
| Basically, say the authors, there is a "distinction between 'policy rhetoric' and 'policy reality'". In order to reconcile the two, it is necessary to have "party discipline" in the policy-making process. |
| The authors have focused on trade policy. When it is being formulated, they say, those in the party who oppose the policy have to be pacified. |
| This is done by announcing "trade policies that favour specific factors, and the expected tariff (or export subsidy) is positive." |
| But as party discipline is enforced, as we saw with the BJP towards the end of its term in 2003, "positions and expected outcomes monotonically approach free trade as party discipline strengthens". |
| The moral of the story is that unless you get your flock together, you will not be able to lower tariffs. Or do anything else for that matter, like disinvestment, reduce subsidies, charge user prices, and so on. |
| The key lies in enforcing party discipline so that different groups in the same party do not pursue different agendas by taking refuge under "party rhetoric". |
| Grossman and Helpman describe the process and the outcome with the help of a model in which "national parties aim to maximise their probability of controlling the legislature, while elected legislators seek to serve the interests of voters in their own districts." |
| This is clearly recognisable in India. Thus, the party may favour disinvestment, but the member of Parliament will insist that it should not be in a public sector unit located in his constituency. And so on. |
| But this deviation from the party line entails a cost. "They pay a political cost that varies with the size of any such deviation." The authors do not specify the cost and assume it to be a part of the country's institutional political framework. In India, though, the cost may well be zero or even negative. There are enough examples of this. |
| Grossman and Helpman have used the model to analyse trade policy, as well they might, being Americans. They conclude that there is a "protectionist bias in the equilibrium outcome of majoritarian systems." |
| This bias is defined as something that increases the domestic price of tradable goods above the international price. The higher the party indiscipline, their model predicts, the higher will be the difference between the domestic and the international price. This, too, has been known to happen in India. |
| They also say that the protectionist bias "arises whenever national parties cannot pre-commit to a policy, and when the majority does not fully incorporate the preferences of the minority in its policy deliberations". |
| This is exactly what is happening within the United Progressive Alliance (UPA) which, for policy making purposes, is a single party. The Congress and the Left are always opposing each other. |
| Their all important conclusion is that as party discipline improves, the country moves towards free or, at least, freer trade. The model predicts that "among countries with majoritarian electoral systems, on average outcomes come closer to free trade in those with institutions that impose greater party discipline". |
| This is a very strong conclusion and it is borne out by China where democracy is zero but party discipline is one. But India could be the counter-example in the trade aspect. Here, even though party discipline has been poor (within single parties as well as ruling coalitions) there has certainly been a movement towards freer trade. |
| But then we are like that only, aren't we, Sir? |
| *A Protectionist Bias in Majoritarian Politics, NBER Working Paper No. 11014, December 2004 |
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