Anticipating the Unintended #40: From China But Not to Chandni Chowk

This newsletter is really a weekly 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?

India Policy Watch: Cheeni Kum?

Insights on burning policy issues in India

— Raghu Sanjaylal Jaitley and Pranay Kotasthane

Ban Chinese goods; teach them a lesson.

There is a momentum to this idea in public discourse these days. There are two camps here. The first runs on emotions. China is a mortal threat to India. They are the aggressor at LAC now. They are duplicitous; they lied to the world about coronavirus and now they are profiting from it. In any case, ‘China ka maal’ is a shorthand for poor quality. We must teach them a lesson by boycotting their products. This is our national duty.

The other camp is more nuanced. We must develop our manufacturing base. China isn’t a free market paragon. Far from it. It is a centrally controlled economy with limited market price mechanism. They control their currency and they have used duties and tariffs to become the world’s factory. We have let Chinese products flood our markets for long. We are in the midst of a crisis now. There have been historic job losses. Why import now? This is the time to support our companies and our people. We must substitute Chinese imports for domestic goods. This is our moral duty.

Sonam Wangchuk’s now-viral video series straddles both these camps. Not buying Chinese goods is a moral duty that we owe to the Indian nation he claims.

Economics and Morality

Both are flawed economic arguments. When I say this, I’m often told there are things that go beyond economic reasoning. Virtue, nation, friendship and love; to name a few. Economics must not overstep its bounds. That free individuals pursuing their self-interest will lead to socially beneficial outcomes can only be true for the economic domain. Not for others. I get these counters, but I don’t agree with them.

First, sound economic reasoning is based on what’s good for the individual, the society and the nation. Good is subjective and, often, relative. Economics tackles this by identifying all choices and their trade-offs. The trade-offs (economic, social or political) are quantified and then compared to reach the most optimal decision. If all dimensions of trade-offs are included, the resultant is in fact, moral.

Second, economics, as Alfred Marshall wrote, is the study of people in the everyday business of life. You can try and keep economics out of other domains, but those domains will infringe into economics since they deal with people. Economics and morality aren’t engaged in mortal combat. They are the same.

In The Theory of Moral Sentiments, possibly, the greatest work of philosophy during the enlightenment, Adam Smith wrestled with this dichotomy and concluded with clarity:

“The respect which we feel to wisdom and virtue is no doubt different from that which we conceive for wealth and greatness. It requires no very nice discernment to distinguish the difference. But notwithstanding these differences, those sentiments bear a considerable resemblance to one another. In some particular features, they are no doubt different, but in the general air of the countenance, they seem to be so very nearly the same that inattentive observers are very apt to mistake the one for the other.”           

To wit, sound economics is moral.

More to Lose

How should we look at the India-China trade relationship? A simple way is to look at the share of each country in the exports and imports of the other. India imported $75 billion worth of goods from China in 2019. This is just 3 per cent of China’s total exports. But for India, this is 16 per cent of its imports. This share is higher if we exclude oil and defence imports where China isn’t a producer (oil) or we have a policy not to buy from them (defence). So boycotting Chinese goods to teach the CCP a lesson would be as effective as getting Virat Kohli to bowl out Steve Smith.

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.