Sāmatvārtha: Crafting India's Future, Policies for Technological and Economic Empowerment

This essay argues that India needs to shift its focus from traditional value capture to R&D and technological innovation, creating advanced, sustainable systems to address economic and societal challenges.

The previous essay discussed the need for India to shift towards a solarpunk circular economy, emphasizing ecological harmony, technological innovation, and simpler administrative policies. It highlights the segmentation of India’s economy into three distinct classes and proposes targeted policies in taxation, welfare, and urbanism to create jobs and enhance economic growth, aiming for a holistic and inclusive economic model termed Sāmatvārtha. Building further on this line of thought below.

Policy That Builds The Machine That Builds…

In a recent appearance, Sharad Sharma, founder of iSPIRT, mentioned how India needs to unlearn its approach to value capture - i.e. it needs to focus more on RandD instead of job work or trading. A product nation, as he says! He takes an example of the Textile industry, where how China is capturing most of the value by focusing on precision machinery, which India then buys to capture minimal value via job work. An extension of this idea can be what Elon Musk says - building the “machine that builds the machine”. And maybe a machine being not just a mechanistic device but also that organizing humans for successful coordination.

India has many problems - a village economy problem, an RandD problem, an urbanization problem, a commute and (public) transit problem, a policy incentive problem, the already mentioned fabian-socialism problem and the upcoming candy-capitalism problem, just to name a few! Do we then have the right policy that aligns us to build the machine that builds the machine that builds the machine that builds…?

On one hand, it seems our policymakers - bureaucratic or otherwise - just can’t resist the lure of paternalistic governance, with its heady mix of id-serving rhetoric and rent-seeking. For them, it’s easier to slap a band-aid on a hundred symptoms than to tackle the root causes. Corruption, lobbying, and non-compliance are just the norm, while private capacity building is not trusted and liberated from the power creeps. It’s no wonder our state’s growth and welfare motive is hindered by a dysfunctional machinery that desperately needs to evolve.

But on the other hand, it is - apparently - difficult for policymakers to do anything out of the norm - be it due to system incentives or first principles clarity. To fight this systemic inertia, therefore, change management becomes as crucial as the core (techno-cratic) policy proposal.

Figuring out how to swiftly navigate the challenge of political economy and rent-seeking interests with agility is a crucial part of the process.

Whatever it might be, if we truly want to build the machines that build our nation, nothing else can exponentially accelerate it more than right policy. The love for micro-management needs to go. The pretense of intended consequences, disregard for the unintended consequences, and the sly of intended consequences of the ‘unintended consequences, all of these need to go. The norm of overly complicated, ever-changing, inefficient, ineffective, corrupt lobbying needs to go. Let’s remind ourselves again of the beauty of simplicity, stability and transparency - bringing clarity to the masses and ease of compliance. This will only come to be when we can find a relative win-win situation for relevant stakeholders.

We should not forget that fundamentally every act of governance is an act of implied coercion. Thus, we should be very cautious where it is used and is acceptable. As Max Weber postulated, the state is a monopoly on violence, a power to coerce. And guess what - ‘with great powers comes great responsibilities’. Therefore, one could argue - as we are doing - that the only reason for a state to act is market failures (of four types mentioned below:)

• Public goods, i.e. non-rival and non-excludable goods with a free-rider problem;
• Asymmetric information, therefore regulations on quality control and against fraud;
• Externalities and collective action problems, like pollution;
• Market power concentration, coercive agents or anti-trust activities.

Ajay Shah and Vijay Kelkar agreed with such a view in their work “In Service of the Republic: The Art and Science of Economic Policy”. The reason it is critical for the state to retreat is to create more breathing space for civil society and social capital; we are anyways short on effective state capacity! It is also critical to have one instrument for one objective, to avoid a spaghetti code of conduct. These will allow the state to design cleaner incentives, which is crucial because behavior is endogenous to incentives/codification. Thus, compliance is also bound by (meta) incentives. As per them, one can use the following four dimensions to assess the complexity of public policy: (1) No. of transactions or touchpoints; (2) Discretion at the front line vs living by the manual; (3) Stakes - high or low; (4) Secrecy (less accountability) vs transparency (more accountability).

Acknowledging these realities, let’s move towards some brainstorming for now, and we will give due focus to change management in the following writeups. Key to the approach is - simpler heuristics for complex adaptive systems which can internalize externalities and solve for collective action, all while being comfortable with market equilibrium. It’s time to simplify our self-designed complex systems, remove the friction and malaise, and unleash the true potential of our economy. Let’s think fundamentally about Money, Taxation, Welfare, Urbanism, Fiscal, and the Monetary.

A Hypothetical ‘Foreign Aid’ to India by India

Back in 2016-17, UPI had been launched, fierce public debate was happening on linking welfare with Aadhaar, demonetisation of a majority of Indian currency notes would happen, Bitcoin would start picking steam, and I was - allegedly - learning economics in my university. The jobs problem was part of public discourse even then, and I started ruminating on a thought experiment, without knowing much about the India-1-2-3 thesis, or banking in the 16th century.

Hypothetically, let’s split the Indian economy/participants into two halves based on household income. Call them India A - the top half - and India B - the bottom half. Now assume India B is not allowed to interact with India A. What this essentially means is that India B does not participate in the jobs market of India A. India B also holds relatively minuscule land/assets thus their impact on their price markets can be ignored and assumed negligible. Now what happens to the labor/wage markets of India A? Will the cheap domestic help or daily wage earners in India A become slightly more expensive? Will their standards of living improve? Most likely yes, as the supply of labor from India B is gone.

Now let’s assume there is a kind of foreign aid that gets sent to India B from India A - the Welfare which will allow them to survive and upskill enough to be able to migrate to India A. Let’s assume the whole economy of India B is of welfare and runs on a different currency than INR. The distribution of this new welfare currency and its relationship with the base INR of India A is equivalent to the fiscal and monetary policy of India B’s welfare currency. Peg some aspects of it to taxation in India A, and we get an interesting hypothetical playground. Now let’s blur the boundary between India A and India B to avoid the pitfalls of means-testing, and we might start seeing patterns similar to that of typical welfare as well as Universal Basic Income.

The above thought experiment, in hindsight, was my first crude attempt at Sāmatvārtha. My thoughts on Universal Basic Income have evolved since then. It for sure avoids the pitfalls of means-testing, but it does have a slippery slope issue, considering the dominance that modern monetary theory came to enjoy especially during COVID-19 era printing. So, Universal Basic Jobs maybe then, well that again goes closer to the fabian-socialists than to liberation. Maybe just go another level meta, and extend it to an already existing idea of basic deduction in taxation - maybe Universal Basic Exemptions might become an answer, being operated on a parallel currency of tax credits. More on this in Sāmatvārtha - Tryst with Taxation, Welfare, and Urbanization.

But before that, what even is a currency? What even is Money? We will see in the next essay.

Authored by Moberation. Published by Brhat.