The intellectual comfort blanket

In 1952, when much of modern political economy — with its central role for democratic governments, labour rights, free trade, and liberal finance — was being born, an American cartoonist called Charles M Schultz created a character called Charlie Brown. A key player in his comics was a very small boy called Linus, who clung tenaciously to his blanket. 

That blanket has come to be known as a “comfort” blanket. It is now a generic term for things that make you feel secure. Take it away and you start feeling uncomfortable and edgy.

Many professional Indian economists today, as well as others who know some economics, also now have such a blanket. On one side of it is trade liberalisation. On the other side is fiscal conservatism. They clutch this blanket tightly. The grasp has become tighter since 1992. 

Indeed, these have now become articles of faith. But there is an unanswered question: Whose interest do these articles serve? This question is never asked by the adherents of orthodoxies.

This absence of ijtejad imposes serious limitations on responses to new situations. But if questioning is essential for having good politics, why isn’t it for the intellectual frameworks of economics? 

Thankfully, history is replete with the debris of orthodoxies. But their enumeration is a no-brainer.

What is far more important is to look for the reason why a set of orthodoxies gets discarded. And there are two, and only two, reasons why this happens.

One is when someone comes along who doesn’t give a damn for the orthodoxies. The other is when the circumstances change. Usually, however, these don’t happen simultaneously. 

Double whammy 

But what if they do? What does a society do when it gets hit by what the Americans call a double whammy? This is precisely what has happened now. 

The guy who doesn’t give a damn is Shri Xi Jingping, self-anointed King of that caricature of a country, communist China. Ever since he came to power in 2013, China has become an even more serious problem that resembles a maddened elephant.

Thus what China wants, it demands. What it demands, it backs with threats. Sometimes it even takes, as in Hambantota in Sri Lanka and Gwadar in Pakistan. Next could be Mount Everest.

And the new circumstance is the sudden stop of the global economy induced by the virus that China exported and the response to it by panicky governments, including ours. What worked in a totalitarian state had little chance of working in non-totalitarian ones. But there it is. 

But all this doesn’t matter anymore. What matters is that things have changed. On that at least everyone is agreed. 

It’s interesting, also, to point out that orthodoxies have been discarded, with almost metronomic regularity, in the first quarter of each of the last five centuries. With each deletion, the paradigm has changed. 

And this is exactly what we need to do now, especially for the economic challenges. The context for this is the trashing of all rules by China, and the West not caring about the free flow of labour but insisting on the free flow capital. 

Between them, China and the West have completely smashed the post-WW2 arrangements, which worked reasonably well till 2013. Global cooperation is for the birds. 

Indian response 

We are lucky to have at this juncture a government that enjoys a big majority in Parliament and which, moreover, is led by a man who isn’t squeamish about breaking old rules. He has already broken many because he doesn’t have any intellectual attachment to them.

He now needs to break some more, which, by the way, is what Indira Gandhi did when she so hugely elevated the role of the state in industry and finance. And which is what Narasimha Rao did when he de-elevated it. Both broke the prevailing orthodoxy. 

Mr Modi therefore should review trade liberalisation as a multilateral commitment and renegotiate the FTAs while increasing tariffs. As our numerous FTAs have shown, it’s suicidal to hold on to the old ways of thinking. That has brought disaster. 

Second, he can be even more relaxed about the fiscal deficit. This is what all previous governments have done but not admitted. And he needs to reduce income tax drastically in today’s context. It’s absurd to have tax rates when incomes are low. 

The basic logic of these prescriptions is simple. Why keep doing things which no one else is doing because they have become counter-productive?

Indeed, in politics, doing exactly the opposite of what the Congress did for 70 years has fetched Mr Modi enormous dividends. Why not in economics also?

After all was it not Vidur, the wisest Indian of all time, who told Yudhisthir that every good practice has a sell-by date. 

That’s exactly true of our post-1991 policies also.