This newsletter is really a public policy thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question: how do I think about a particular public policy problem/solution?
Welcome to the mid-week edition in which we write essays on a public policy theme. The usual public policy review comes out on weekends.
— Raghu Sanjaylal Jaitley & Pranay Kotasthane
As many might have helpfully reminded you a million times recently, these are unprecedented times. We, at this newsletter, laugh it off because we don’t believe in the arrow of time. There is no past, so, where is the question of a precedent? But you have to admit things are a tad unusual. When you see Trump holding a bible in front of a church and priests baptising babies with water guns in scenes even Tarantino’s mind would have struggled to imagine, you can’t simply shrug your shoulders and say whatever.
There are other ominous signs around as well. Whatsapp messages exhort us to boycott videshi products with helpful sectoral desi-videshi segmentation charts, TV news anchors shake our conscience with questions on why do we import diyas and agarbattis from China, the PM gently nudges the industry towards import substitution and the DGCA insists the middle seat passengers of airlines must wear ‘wraparound gowns’ that meet the diligently approved gown standards proactively set by the ministry of textiles.
Such events raise many questions in the minds of our readers. So, we thought it is best to wheel out our parampujya guru of economic reasoning, Prof. Arthananda Ilyich Smith-Hayek (AISH), to help us with answers. Prof AISH is a home-grown economist without a single videshi bone or cartilage in him. He is a veritable sangam of three key economic streams – Neoclassical, Marxist and Austrian – whose advice can be safely consumed in these low trust times of lateral surveillance. Over to our readers and their questions.
Q1. Dear Prof, we are a big country with so many talented people. NASA, Google, Microsoft, Whatsapp, Pornhub – all these great institutions will collapse if we Indians decide to boycott them. Why shouldn’t we make everything in India and become a world leader? Why shouldn’t we substitute all these with Indian products? (ok, except Pornhub).
Prof. AISH: Dear Bharat, there’s no reason why we shouldn’t aim to be more self-reliant by making more products domestically. But like most things in life, we should be careful about how far we go with this philosophy. Taken to an extreme, this will lead to autarky. Not a good outcome. Let’s first look at what happens if we stretch self-reliance beyond economic reason.
Consider your family as an economic unit. Maybe you run a company that manufactures solar panels and your spouse works for an IT services company as an engineer. You have school-going kids who are dependent on you for their needs. You employ a cook and domestic help at home. You and your spouse like spending time at your kitchen garden during your leisure. As your garden blooms with herbs, vegetables and flowers, you realise the price you pay for them in the market is exorbitant compared to what it takes to grow them at home. You are soon questioning everything you buy from the market – milk, juices, clothes, soaps, food grains, your kids’ tuition and entertainment. Everything would be cheaper and safer if you made them at home. You can see where this is going. Would you start making all of them at home?
You find the question absurd. The obvious answer is no. Why? First, you don’t have time to make all of them at home even if you devote all your spare time and consider putting your kids to work on them too. Also, you won’t be good at raising cows, tailoring or at growing paddy in your garden. Lastly, you and your spouse are good at your jobs. If you spend your time learning more about your work, you will get richer rewards. So, it just doesn’t make sense for you to make everything at your home. Sure, you will still do a few things predominantly at home. For instance, you can’t imagine eating restaurant food every day. So, you will cook food at home on most occasions. Or, maybe you will always use herbs from your garden than buying it from outside. But these will be limited based on your priorities.
It is actually not a huge leap of imagination to extend this model to a country. There are natural resources, climate, land, technology and people that any country is endowed with for it to use productively. A country gets better at producing a few goods or services over time while it either doesn’t have resources or expertise in making others. So, it buys them from other countries who are good at making them. Now, it is possible that the country has spare resources (people or otherwise) that it can put to use to make a whole lot of things within its boundary. The question is which of these things the country should start making at home than buying from outside? The country can’t indiscriminately decide to make every single product at home. The criteria to decide this could include – what it might be good at making based on its assessment of our capabilities, what it could make in large volumes so it might even sell it to others and profit, and what could be high on priority for it like safety and security of its citizens.
If you follow the above, you will realise we have to carefully choose our bets in areas we want to be self-reliant. This will yield a smaller basket of products and services that we can target in being world-class producers.
We must not forget if we start closing our doors to others indiscriminately, they will start doing the same to us. This will be a zero-sum game. Specialisation and comparative advantage are real constructs. They help everyone gain. It is obvious to us when we apply that to our daily lives at homes. It can seem a bit non-obvious when we think of it for a country as large as ours. But, trust me, it is no different.
Also, there’s a paradox in pursuing the goal of self-reliance for any country. Let me explain how.
One can be self-reliant at multiple levels. The highest level (level 1) of self-reliance is when an economic unit can produce and consume everything by itself. No country in the world has reached this level.
The slightly relaxed condition of self-reliance (level 2) is when one can afford to buy what they want irrespective of who produces it. This level can be achieved by becoming rich. If you are rich, you can pay to buy any service you want. Even if the service provider asks for more, you have the wherewithal to buy that.
The lowest level of self-reliance (level 3) is when you cannot produce what you want and neither do you have the economic wherewithal to afford everything you wish. However, you do have enough diversified relationships with many producers of items that are really critical for you. So, you get what you want in your time of need from at least one of them.
India seems to aspire to reach level 2 – the slightly relaxed condition of self-reliance. Fair enough. To get there, we need to become rich. To get rich, we need investment and expertise from abroad. In other words, you need to rely on others. Just like Japan, China, and South Korea did on their journey to get rich. So, and this is important for you to understand, how we proceed towards becoming self-reliant is just as important as the goal. If we close our economy to the world in our search for level 1 self-reliance, we will not even achieve level 3 self-reliance.
Read the full edition here.
Disclaimer: Views expressed on Anticipating the Unintended are those of the authors’ and do not represent Takshashila Institution’s recommendations.