Anticipating the Unintended #52: Trade Surplus, Truth Deficit

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?

PolicyWTFs: “…But There Is Discipline and Moral Upbringing In Our Country”

This section looks at egregious public policies. Policies that make you go: WTF, Did that really happen?

— Raghu Sanjaylal Jaitley

Testing The Base

Of course, we will talk about these amazing tweets about India achieving monthly trade surplus for the first time in 18 years. It is always good to be optimistic in life. What have pessimists and naysayers achieved?

A lot has already been written about the misleading nature of this information. Some have questioned the competence of the ministry if it believes this is positive news.

What do we think about this? Well, there’s reverse Hanlon’s razor at work – “never attribute to stupidity what can be explained by malice.”

There’s more happening here than is seen:

  • The minister and the officials in the ministry know what trade surplus in the current environment indicate about the state of Indian economy. This isn’t rocket science. Instead, a simple hypothesis is being tested. Will the ‘base’ overlook truth and national interest as long as their party or leader is seen in a positive light? Knowing this truth can set the executive free. The narrative about no Chinese incursions despite evidence to the contrary is another instance of this hypothesis. The answer is clear. We have crossed a rubicon of some kind in the past few months.
  • Experts and objective commentators no longer matter in this world of information disorder. There’s a craven traditional media and a ‘captured’ social media to amplify the message before experts can even get a word in edgeways. This was known but there was some imaginary restraint on how far you could push the line with the truth. It’s gone.
  • There is a second-order problem. The government is the source of data, information and analysis that’s important for policy watchers. It is difficult to do this if the first step now is to verify anything released by the government. How should we view the government’s claim that green shoots are visible in the economy, for instance? The truth will get crowded out. And these bad habits persist across governments over the years.

We Are Speechless

Not content with the above, the minister was also at the valedictory session of FICCI Frames 2020. Three things from the speech stood out which we thought deserves discussion.

Single-window clearance

“I will talk to the states to see how we can shoot more films in India,” he said. “FICCI and the film industry could help us devise a mechanism for single-window clearance for shooting films in India. If all stakeholders come together, we can surely make it easier to do business in India.”

We have a single-window fetish when thinking of ease of doing business in India. It is one of our pet peeves and Kelkar and Shah in their superb book In Service Of The Republic have called this the single-window chimera:

“Every now and then, we hear proposals in India to hold state coercion intact and make life easier for private persons by setting up ‘single-window approval’. There are two problems with this approach.

First, we do not make the Gestapo nicer by setting up a pleasant front desk. Single-window systems do not solve the problem of state coercion, and the threat of raids and punishments including possibly criminal sanctions. Second, in the absence of deeper reform, it is hard to build single-window systems that overcome a maze of restrictions. Many or most enthusiastic announcements of single-window systems fail to work out in practice.”

“We must go deeper. We reform by whittling down and correcting state intervention, not putting a user interface on it.

…..Our problem in India is inappropriate state coercion that limits cross-border activities, and this is not solved by a single-window system governing approvals for cross-border activities.”

Trade reciprocity

The minister was on fire in this session:

“If any country is creating roadblocks for Indian films to be shown there, then India will reciprocate and not allow that country to display their entertainment products in our country. “India will work with reciprocity and we will engage with a position of strength and get a fair deal for all our industry.”

Why do we opt for free trade? One reason is we find markets in other countries in the same way as other countries find in ours. This is the thinking that drives reciprocity. But we must open our markets to others regardless of reciprocity. Because there are advantages to imports. Greater choice and global competition mean more value to the customer. Also, there might be one country or a few that might choose to close their markets to us but there is the rest of the world. Imports make domestic firms more competitive and that helps them win in other open markets.

Import is not a loss to the GDP of a country. This false notion is widespread.

GDP = Consumption + Investment + Government Spend + Net Exports (Exports-Imports) frames imports that way mathematically. Imports are subtracted in this equation because all the import spending is already accounted for either in Consumption, Investment or Government Spend. Since GDP is defined as the total of goods and services produced annually within the boundary of a country, the import has to be netted off to stick to the definition of domestic. Therefore, the subtraction of imports in the equation. It is a mere accounting exercise. More imports don’t mean lower GDP.

We have spoken of this in a previous edition here.

Unilateral free trade without any reciprocity from the other is better than protectionism. Any day. For more on this, listen in to this episode of All Things Policy.

Morality and society

Then the minister switched to morality, culture and society:

“I support creative expression (but) there is a lot of misinformation there and poor portrayal of India and Indian society. It can be a wake-up call, but one can’t glorify issues through such programmes. There have to be limits to allow global content to resonate,” Goyal said, and added that “high cultural and traditional ethos and moral values” need to be maintained in the country.

“Many countries have cultural depravity and children develop bad habits but there is discipline and moral upbringing in our country”.

This is tricky territory. The point about cultural depravity of other countries and its contrast to the high cultural ethos and moral values of India is difficult to justify. Who can make an objective judgment about this? It is best to take the relativist position on this and leave it there.

What about censorship of content though? The remarks above were triggered by the unregulated content that’s available on OTT platforms that banks on erotica to attract viewers. While this is true, we also had a record viewership of the re-runs of Ramayana and Mahabharat during the lockdown. Which of them represents the morality of our society? If we accept one of them as a marker of the cultural values of our society, what explains the other? So, how should we regulate content?

The old question of law and morality comes in. Should law intrude into the moral sphere of citizens?

There are a few frames to think about this. The usual caveat of egregious unlawful content that shouldn’t be available applies to this discussion.

First, censorship is a blunt instrument to use. Setting a top-down list of objectionable activities and using them to police content by the state leads to rent-seeking behaviour among the guardians of morality and drives the market for such content underground. This makes things worse. Also, what constitutes moral content is difficult to define. We have had years of obscene bump-and-grind routine or gratuitous scenes of sexual violence in Hindi films passing through censors while a kiss between consenting adults onscreen was an anathema.

Second, there’s a distinction that should be made between public and private spheres. We use our intuition to guide our behaviour in public. This is different from our conduct in private space. The law should focus on maintaining this intuitive decorum that allows free individuals to conduct their business in public without the threat of private behaviour of others spilling onto public. This is the freedom that law should guarantee.

The private space of individuals has been guided by the doctrine John Stuart Mill put forth in On Liberty (pp 13):

“That the only purpose for which power can be rightfully exercised over any member of a civilised community, against his will, is to prevent harm to others. His own good, either physical or moral (emphasis ours), is not a sufficient warrant. He cannot rightfully be compelled to do or forbear because it will be better for him to do so, because it will make him happier, because, in the opinions of others, to do so would be wise, or even right.

It is, perhaps, hardly necessary to say that this doctrine is meant to apply only to human beings in the maturity of their faculties.”

In Mill’s view, the law shouldn’t be used to prohibit the rights of people who are acting on the basis of mutual consent. This principle has been central to liberalise the laws regarding sexuality and immorality over the past century.

So, the laws guiding morality or upholding cultural values should restrict themselves to the public sphere. The content on OTT platforms is for private consumption. It should be certified on the basis of its age appropriateness. Certifying is easier to regulate than censoring content. Identity and age proof along with a price mechanism can be set to ensure adherence to certification norms.

Anything beyond this is vacuous moralising that will have the unintended effects quite opposite of improving the moral standards of the society.

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.