Note: I had written this for last week's newsletter that never got sent out, before the Tik Tok ban.
Trade benefits both parties while war hurts both parties. War is bad, but sometimes unavoidable. When we are impelled to fight an unavoidable war, we fight it, and we aim to cause harm to our opponent even at a cost to our side, in pursuit of strategic objectives.
What about a Trade War? Economists say that trade wars are bad because they hurt both parties. But are they justified as an instrument of war? We are confronted with this question today with China in the wake of the Galwan confrontation.
I don't know the answer. First, I am in favour of a clean distinction between what is a war and what is not a war. The rules are different when we are at war or close to it. We seem to be in a near-war situation, and I am willing to concede that the rules should be different now. But I am wary of using the "we are at war" rhetoric to guide economic policy in general, because we will end up with a lot of self-destructive protectionism and rent-seeking in the guise of waging an economic war.
Secondly, in this situation, fighting a trade war is almost certainly going to hurt us economically a lot more than it hurts China - it may still be worth it if we can achieve our strategic objectives, but I am not sure of the costs and benefits.
Thirdly, a voluntary economic boycott will not work. An economic boycott of China will result in a lot of Tic toc videos and WhatsApp forwards, but people will forget after two months and move on to the next outrage. An economic boycott will amount to a boycott of brands associated with China and will not be calibrated to cause the right amount of injury to China, the nation-state. A boycott of Zoom, for example, an American company started by a Chinese immigrant is hardly going to bother the Chinese government. And we haven't even gotten to the various supply chain issues where China is closely involved. It simply won't work.
Fourth, there is the argument that the Government should use protectionism and tariffs judiciously to build up India's manufacturing base and reduce dependence on China. This is the infant industry argument the logic of which is flawless, but never actually works in practice. If you have children, you will know that while some amount of protection may be necessary while they are building up their capacity, but exposing them to competition from the outside world is also an essential part of building up their strength. Are you, as a parent, presumably dedicated to them and with their best interests at heart, making the right trade-off?
If you are not confident that you are, how do you expect the government, a body subject to pulls and pushes from and susceptible to capture by multiple vested interests, possessing of only blunt instruments such as tariffs, to make those fine-tuned choices that will ensure that the infant industries will grow up and be strong and competitive? What will happen is that these infants will remain infants for an inordinately long period of time, and they will forever demand protection that the government will be compelled to provide.
In any case, the problem that Indian industry faces is not competition from China, but the business environment in India. It is better to focus on that rather than provide it with protection.
Free the Farmer
In the India of my dreams a person from a humble background in a small village or town is able to start a small business. It is not just possible, but normal for many of those small businesses to get formalized and turn into medium-sized enterprises while continuing to be based in those villages or towns. The India of my dreams is dotted with hundreds of clusters of these small and medium businesses. These clusters are in rural areas, and are now turning into towns and cities. Local governments are dynamically responding to the organic growth of these clusters, and providing urban facilities as required. The difference between gram panchayats and municipal corporations is not binary, but the two lie on a continuum with the governance structure scaling seamlessly.
Many of the medium scale fail, to be replaced by others, while a few turn into national and multi-national corporations. When one of these things happen, it is not a source of amazement that something unusual has happened, but a matter of quiet pride that this kind of thing being routine is what contributes to the dynamism of our economy.
That is the dream. In the India of our reality, only the first sentence is true. There are many small businesses. Very few turn into medium-scale enterprises; a large proportion of our economy is informal. Large-scale enterprises depend on the government giving them special dispensation. The government has to acquire land for them, and create special zones that are protected from the regulatory burden that the rest of India is under. A city in India doesn't grow organically, but given that it manages to undergo haphazard growth anyway, inorganic growth doesn't mean planned growth. Because the government actively prevents clusters of medium-sized enterprises from being formed, it actively prevents cities from forming. The cities that do exist are choked, but people continue to migrate to them as they are the only available opportunities to escape the trap of poverty.
People have recognized that we need more cities, but the solutions I have heard - shifting state capitals or cantonments to rural areas - do not address the actual problem, which is that it is too difficult for cities to form organically. We have too few cities and too much migration to them, and we continue to have too many people on farms, most of whom are determined that their children shouldn't continue after them.
There are many regulations that serve as bottlenecks preventing the growth of cities, but the biggest one in my view is that farmers are prevented from selling their land to non-farmers and/or for non-agricultural purposes. It looks like the government of Karnataka, in the fog of the Corona crisis war and supported by the cover fire of the Atma nirbhar Bharat, has done away with the ban on the sale of agricultural land to non-farmers. Shruti Rajagopalan has a great piece in the Mint explaining why the move is a great one for farmers, and how it will help them by thickening the market for agricultural land into a thick one. She's right.
I have not been able to figure out whether the change also means that there is no restriction on use of land - that is , whether a non-farmer can buy the land and use it for non-agricultural purposes; I hope it does. In the India of my dreams, there will be many cities, and fewer farmers. The farmers that do exist will own larger tracts of land, and these farms will be more productive, giving them a better income. We will need less farmland. Some of the land that was formerly farm will now be town, and hopefully others will turn into forest.
(I had written a rather melodramatic blog post 14 years back titled Dear Middle Class of India. The tone of it makes me cringe now, but I made similar points, and I wanted to argue against romanticization of village life.)
The Sanjay Gandhi Counterfactual
I have a fascination for counterfactual history while at the same time being appropriately sceptical of its possibility. For example, there is a counterfactual history written by Jayant Narlikar where one bullet in the third battle of Panipat takes a slightly different trajectory, doesn't kill Vishwas Rao, and as a result, the Marathas do not weaken, and the British do not take over India. I am sceptical of that trajectory, because the weakening of the Marathas could have been delayed, but not prevented. The takeover by the British was inevitable due to structural reasons and was not an accident of history.
Another problem with counterfactual history is that it is difficult to construct an alternative history where only one thing is different. For example, you can wonder how the history of India would have been different if instead of Rajiv Gandhi, Narasimha Rao or Pranab Mukherjee had become Prime Minister in 1984, but the INC of 1984 could not help but choose Rajiv Gandhi, so you have to go back and change many other things for you to achieve this result, which makes it intractable. This is why, to construct alternative history, you have to look at those accidents that could have gone slightly differently, like Sanjay Gandhi's death.
Is it true that if Sanjay Gandhi had not boarded the aircraft in 1980, he would have been 72, now confronting Modi in the political arena, as this somewhat fawning piece claims? I don't know, after all, we don't have a 76 year old Rajiv Gandhi confronting Modi at this moment, because of the that explosion in Sriperumbudur in 1991, so why wouldn't Sanjay Gandhi have been there instead of Rajiv? It's fair to say though that if he hadn't died, he would have become the prime minister in 1984. The late 80s would have been much more turbulent than they already were, with an unpopular and autocratic Sanjay Gandhi at the helm, and the decline of the Congress would have been faster. My preferred model of history is that these accidents may cause perturbations in the course of history, but over time, these die down and over a sufficiently long run, history is determined by structural forces.
Dark
Given my interest in counterfactual histories, you'd expect me to like Dark, the web series that just concluded last week. You'd not be wrong. I loved every minute of the series, but taken as a whole, it left me dissatisfied.
Dark is a German web series that deals with time travel. Now, some bad things happened in Germany in the last century, so you'd think that if Germans invented time travel and could travel back in time and alter past events, there'd be some obvious work to do, but no. This series takes place entirely in a fictional town called Winden, which, while unmistakably in Germany, seems to be entirely self-contained. It displays some awareness of the world outside - you hear news of the Chernobyl disaster on radio, and people do come into Winden, but no one ever leaves or conceives of leaving as a possibility.
The series revolves around the characters travelling to the past and to the future, trying to shape the sequence of events so that a nuclear apocalypse in the present is averted. The challenge is that changing the past to avert undesirable things will also change it in a way that many things they love, including their own existence, are erased. So they end up trying to preserve the sequence of events as it is, trying to find that elusive point in time where events can be changed with minimal impact. This was the part of the story that I found most relatable at a human interest level. This is what we do with our children, after all. We think of them as younger versions of ourselves, and we want to give them all the experiences that shaped us, and also expect them to avoid all the missteps that we committed. The protagonist of Dark is Jonas, who sets out to change the world, and he encounters a couple of older versions of himself increasingly intent on preserving it. This struggle he has with himself is the struggle that has played out many times over.
But really, the struggle to preserve or change the world is nothing more than a McGuffin. Everyone is intense and serious about it and the acting is great, but once you are out of its spell you are left wondering why they are doing it - it is a dark and morose world, the characters don't seem to be having fun or doing anything at all other than what the director wants them to do to move the story forward (or backward), so what exactly is the end they are hoping for? The reason to watch Dark is not so much to explore philosophical truths about free will or to follow a compelling human story. The way to enjoy Dark is to enjoy it as a puzzle, as the different timelines are teased out. There is a lot of mumbo jumbo about Quantum entanglement and Shrodinger's cat with some Christian mysticism sprinkled on it.
In season 3, they introduce the Quantum multiple worlds hypothesis, and this ends up being a copout. Without giving away too many spoilers, if you go back to the past and alter events in such a way that your own existence is erased, your existence should be erased in the past as well. You shouldn't just dissolve after the event.