The Third Pillar

Title: The Third Pillar – How Markets and the State Leave the Community Behind

Author: Raghuram G Rajan

Publisher: HarperCollins India, 2019 (First)

ISBN: 9789353028398

Pages: 435

After a decade since the economic recession of 2007-08, the world economy is worried by trade wars and the prospect of slowdown in leading developing economies. A wholesome analysis of the development and future path of the world economy is hence warranted by circumstances. And there is nobody better suited to do it than Raghuram Rajan who is a financial bigwig serving the IMF and US academia. This engineer-turned-economist attempt a survey of human societies by identifying the three pillars on which every modern society rests. These are state, markets and community. All three have equal importance and the intricate balance between them is to be preserved if the society is to stave off breakdown. Of these, the community, which is the third pillar stands neglected in the larger scheme of things today. This huge book is Rajan’s diagnosis of what is wrong and his prescriptions for turning around.

Rajan presents a delightfully condensed version of the development of the three pillars of society. With the advent of the dark ages in Europe, trade diminished and centralised authority degenerated into numerous feudal manors and weak monarchs who linked them. As trade collapsed, exchange of money on a regular basis was no longer required and the church tightened the scriptural prohibition of usury. Centuries went by in this stagnant way. By the fourteenth century, trade picked up again with new routes opened up by the crusades. Moreover, the Black Death eliminated up to a third of the population. This in fact improved the fate of the survivors when real wages surged because of the manpower shortage. Money was essential for trade and the church liberalized usury restrictions or turned itself into a moneylender. Development of gunpowder and military technology made it economically unviable for small states to wage wars. This limitation forced them to consolidate by merger and acquisition of feudal units. Kings became powerful who kept the feudal lords under a tight leash. In principle, kings had unlimited power for taxing and appropriation of resources from his subjects. This was the pinnacle of state power. However, the monarchs found that some restrictions on their despotic power would be better in the long run. Parliaments came into being and taxation was slapped on the people only if accepted by the parliament which represented them. This limited monarchy assured the people of protection of their wealth and property if taxes were paid regularly and without arrears. This obviated the need for private militias and the monopoly of violence came to be rested on the state. By the late-eighteenth century, states assumed the fundamental characteristics we see in them today.

The development of the second pillar – markets – is a little more recent as the book suggests. Trade was a part of the lives of kingdoms and feudal lords, but the ideas of free competition and laissez faire appeared only in the eighteenth century. Capitalism and socialism saw markets as a tool to pave the way to their own ideological paradises. The socialist movement in Europe produced its communist offspring in 1917 in the Soviet Union. The markets were firmly under state control, and to be more precise, under party control. The great depression of 1929 was the greatest threat to capitalist order while Communism was still alive. The stock market crash and the recession which followed wiped away the livelihood and prosperity of millions in the Western world. The liberal governments had to reluctantly put in place measures to restrain competition in the market to ensure more equitable distribution of wealth. The theoretical background of the socialist tendencies of newly independent countries in the 1940s, especially India, is thus the 1929 recession. The post-World War boom helped mask the rising inefficiency of the system.

Rajan identifies many reasons for the definite shift away from state control of markets in the 1980s. After three decades of impressive performance, growth slowed in the 1970s. The oil embargo put in place by Arab states in protest against the pro-Israel stand of the West crippled economies in many quarters of the globe. A semblance of welfare state was standard fare in many countries that assumed a steady economic growth for the sustenance of the program. When growth withered, widespread social unrest followed. Clever politicians like China's Deng Xiaoping correctly identified that the time had come to free markets once again. Barriers to trade and procedural obstacles to entry of new businesses were scrapped in many parts of the world. India followed suit in 1991, twelve years after China made a start and it elicits no wonder to note that the size of China's economy at present is five times that of India. Capitalism had a sturdy road ahead through which its bandwagon rolled steadily forward. The essence of modern capitalism is the continued accumulation of wealth, not because of the pleasures it can by, or the material needs it can satisfy, but for its own sake. It was John Calvin who first provided moral legitimacy to capitalism in a world where avarice was a sin.

Almost half of the book is dedicated to define the third pillar, that is, community and to elucidate the ways to revive failing ones. Community contributes to our sense of who we are. A richer range of transactions can be undertaken within the community than would be possible if everything had to be contractual and strictly enforced by the law. The unfettered globalisation of the 1980s upset rural communities in the developed world. As companies crossed borders in search of cheap labour, production shifted to developing countries. Many semi-urban localities in the US witnessed closure of production facilities that couldn't withstand price competition with products coming from Asian countries. Civic infrastructure and cultural facilities broke down in those communities. The US maintained its lead in high technology and services which were very high up in the value chain. Members of the failed communities were not able to take up opportunities in this sector as their educational credentials were lower. Cheap foreign labour again cut them down in the form of highly qualified immigrants. This led to the growth of popular nationalism and the author levels some prescient warnings and arguments for not going down the way pointed out by the populists.

The latter half of the book is full of monotonous homilies on the way markets, state and community shall interact and exert mutual influence. The discussion is addressed towards the contemporary issues faced by developed economies. A few paragraphs that handle the hurdles on the forward path of India and China is surprisingly uninspiring irrespective of the author’s service as the Governor of India's Central Bank for three years and as an economic advisor to its finance minister. Rajan proposes inclusive localism as a panacea for all the problems faced by a developed country. This is essentially an inclusive nation that decentralizes many decisions to the local, physically proximate community. This concept has a strong correlation to the concept of Gandhiji’s Gram Swaraj (rule by village councils), though the book takes special care not to introduce Gandhi or other advocates of devolution of power even remotely. The book is structured in a textbook style with lots of headings and subheadings arranged in a hierarchical way.

Much of the book concerns with the idea of assigning a more prominent role for communities. Some are just musings or can even be intelligent speculation and nothing more. Many ideas flow out from sheer common sense and some others are mere platitudes such as statements like ‘the problem with too much easy money is that it tends to get wasted’ (p.346). It provides a very good description of American schooling which can be excelled only by pedagogical publications. Educators would find it very appealing. The sad part is the apathy shown to India and her growing concerns on the economic front. The fact that Rajan has mentally gone back to his American life is evident from his self-introduction in which he claims himself to be a professor of the University of Chicago, chief economist and head of research at IMF and adds as if an afterthought his stint as the administrator of India's Central Bank.

Population diversity is what Rajan prophesizes for developed economies as their populations age and prefers to reduce fertility rates. Many of the jobs will have to be undertaken by immigrants from developing countries. The population of the rich countries have no option other than prepare timely for the cultural shock of large scale immigration especially in culturally homogenous countries such as Japan. However, the treatment sometimes hints that it is the developed countries’ untransmutable destiny with an ominous ‘or else’ hovering in the air. The author’s suggestion that keeping out migrants might create a wider security problem if stateless youths, with little to lose, may take up arms and vent their anger against the unsympathetic world (p. 294) is plain blackmail. Moreover, he keeps silent on the jihadi proclivities of Asian immigrants which is the prime reason why local communities despise the entire immigrants.

The book is recommended.

Rating: 2 Star

Einstein’s War

Title: Einstein’s War – How Relativity Conquered Nationalism and Shook the World

Author: Matthew Stanley

Publisher: Viking Penguin, 2019 (First)

ISBN: 9780241376584

Pages: 390

Einstein’s famous equation E = mc² so revolutionized science that researchers turned to nuclear fission as a kind of weapon. Even though Einstein's contribution in the theory, development and explosion of the first two nuclear bombs is negligible, the public perceives him as the genius who influenced the outcome of World War II. This makes the readers think about the Second World War upon seeing the book’s title. Interestingly, this is not the case. The book deals with World War I when Einstein published his theory on general relativity in wartime Germany and how Arthur Eddington, a pacifist British scientist, arranged an expedition around the world to verify the theory coming from an enemy country. It sings the paean of the international spirit of science transcending national boundaries and soaring above parochial politics of the ruling classes. It also serves as a warning note by narrating the experiences of several other scientists who fell for the prevailing public opinion and invented devices to inflict gruesome death on enemy soldiers and civilians. Matthew Stanley is a professor of the history of science at New York University’s Gallatin School of Individualized Study. He has published two academic books and this is his first trade book. Judging by the quality of research and presentation, we can be fairly certain that we’d see more of the author in the coming years.

As it claims, the book is all about watching the development of relativity brick by brick, from thought experiments to radical concepts to experimental confirmation. It follows a dual track narrative, explaining the life and work of Albert Einstein and Arthur Eddington in alternating chapters and sections. Eddington’s role is paramount in defining the genius of Einstein. He worked against all odds in a British setting. Being a Quaker, he refused to fight in the Great War. This was at a time when the casualty figures of the war was so great that the British government mopped up all men of fighting age irrespective of their talent, education or natural bent. This indiscriminate conscription wasted the lives of many promising scientists in the killing fields of continental Europe. Relativity was a complicated, abstract theory beyond the ken of most people including scientists. Eddington untiringly studied the theory, braving wartime censoring of information coming from enemy territory and developed textbooks for general use. He also conducted speeches to elucidate the theory to ordinary folk and built a support base for efforts to verify the predictions of the theory. Einstein predicted that gravity deflected the path of light as if it had mass. The precise value over which the deviation would take place was also estimated by theory. Eddington arranged two teams which travelled to Brazil and Africa to observe the total solar eclipse of 1919 and to measure the actual deflection. A shift of 1.75 arc seconds was expected, corresponding to 1/60 of an mm on photographic plates and this was observed by the team. It tallied with Relativity’s prediction and Einstein's fame was made. The author affirms that without Eddington, Einstein would not have become such an intellectual giant as he eventually turned out to be.

This book exposes the mutual distrust and hatred developed between the scientists of Britain and Germany during the Great War. Intense nationalism clouded the judgement of intellectuals, forcing some of them to condone war crimes perpetrated by their national armies. Scientific journals omitted contributions by the ‘Other’. Even great scientists succumbed to blind nationalism. British scientist Chadwick was working under Geiger in Germany. When Geiger knew of the arrest of Chadwick during wartime as a preventive measure, he replied that Chadwick was atoning for the sins of the English. Fritz Haber, who revolutionized agriculture with the invention of nitrogen fixing and artificial fertilizers, turned to industrial production of chlorine and mustard gas for poisoning the enemy. Haber was so taken in with appearances that he wore his military uniform, complete with rank, to the lab every day. Stanley provides many other examples of how militant nationalism upset the society’s wisdom gained through centuries of adaptation.

The author has provided some nice anecdotes and funny quotes often associated with Einstein. It is believed that he was not good at mathematics. Stanley remarks that this belief gives comfort to generations of frustrated high school algebra students, but Einstein’s remark was just in comparison to the company he kept. He was brilliant in mathematics, but when he associated on a daily basis with the world's most talented mathematicians, his inadequacy found expression in the self-mocking quip. The deepest truth of the universe needed to be accessed by abstract mathematics, not by empirical experience. Proficiency in mathematics is an absolute necessity in such cases.

Einstein was a genius of the first rate. But that does not mean that he was a good human being or even a good citizen. He spurned nationalism and clung on to his Swiss citizenship to evade military duties. He had earlier renounced his German citizenship when he obtained a job in the Swiss patent office. He had no moral or cultural affiliation to his homeland. This was polished with fine arguments on the internationalism of science. However, this did not hinder him from associating with Zionism later in his life. Einstein rejoiced when Germany was defeated in the war and asked Max Planck to cheer himself up on the abdication of the German Kaiser. Plank’s reply to Einstein was arresting. He said “I feel something that you admittedly will not be able to understand at all… namely, a reverence for and an unshatterable solidarity with the state to which I belong about which I am proud of – and especially so in its misfortune – and which is embodied in the person of the monarch”. A tinge of remorse must have been generated in Einstein's mind on reading this reply.

The book contains flashes of the great scientist’s biography which makes the readers reflect on the stunted growth of human emotions in him. Einstein met his first wife Mileva quite early in his life and never even saw the first child born out of the relationship after she was adopted by his wife's family. The matrimony did not last long after he began an illicit affair with his own cousin Elsa. As the first wife was not legally divorced, he couldn't marry again. He was niggardly when the time finally came to pay alimony. The 8000 francs that was settled upon was conditional on receiving his Nobel Prize money. Einstein soon developed so passionate a bond with his lover’s grown-up daughter that he left the decision of whom to marry to be decided between the mother and daughter. This volume is extraordinarily candid in unveiling all aspects of the lives of its protagonists, even though they often fail to live up to their stature in their personal lives. Eddington refused to join the war effort on account of religious beliefs which forbade it. This was also a case of a reputed scientist blindly following religion.

The book is a pleasure to read and appreciates the scientific principles involved. Abstract concepts are lucidly explained and do not cause a problem to any. The research for this book is made only from secondary sources but the author has carefully categorized and arranged the facts so that they appear fresh. The message it gives to the world is relevant even after a century of the events described in it. The flag of internationalism it holds up should be a pointer to today's world.

The book is highly recommended.

Rating: 4 Star

The Rise of Goliath

Title: The Rise of Goliath – Twelve Disruptions that Changed India

Author: A K Bhattacharya

Publisher: Penguin Random House, 2019 (First)

ISBN: 9780670091805

Pages: 351

India has been a caged tiger for the last thousand and a half years. By the time of decline of the Gupta Empire, its society was caged by a rigid caste hierarchy that wilted its ability to adapt to challenges arising out of its interactions with foreign powers. Then came the Muslim invasions and occupation that lasted nearly seven centuries. Even though there were occasional spells of resurgence in this period, the fact that the society was caged by religion was unmistakable. The colonial cage of the British came up for around two centuries. After attaining independence, petty politicians who considered themselves and their flawed socialist ideology above the nation, imprisoned the society and the economy inside the suffocating mediocrity of Statism. So it was a profound release of the nation’s competitive spirit in 1991 when Prime Minister Narasimha Rao opened up the economy to the world which in a sense was an ideological return to the assimilating and competitive synergies of the late-classical India. This caused a disruption for all participants. India’s post-independence history is full of such disruptions, which are nothing but a change in the way of doing things till that time. Such disruptions can thus be positive or negative. This book considers twelve such disruptive episodes happened in India after 1947. A K Bhattacharya, popularly known as AKB among his colleagues and friends, is a veteran journalist specializing in business and economic affairs. He has worked in leading publications such as Pioneer, Economic Times and Business Standard. This is his first book, but you have to read it twice on the fly-leaf to believe it. So disciplined and absorbing is the narration that lucidly explains twelve arbitrary disruptions that woke up the Goliath of the nation.

Of course, asking one person to name twelve events that altered the course of economic history is like asking to list out twelve books or songs one likes most. There can be considerable diversity in the choices of two people. However, AKB’s selection is so convincing and balanced by seasoned argument as to find immediate acceptance among readers. The disruptions identified by the author are: 1947 partition of the country, rise of Statism, oil shock of 1973, proclamation of Emergency in 1975, reforms of 1991 in the industrial, trade and financial sectors, the Mandal-Mandir issues, demonetization of 2016 and the introduction of a united tax structure in the form of GST in 2017. Can anyone deny the tremendous impact and long-term effects of these weighty events?

Jawaharlal Nehru brought in a tilt that veered Congress party’s course towards the left. With the tacit support of Gandhi, his position was strengthened beyond challenge. Gandhi preferred Nehru as a person and not due to his political shade. But this fact hardly changed matters. With the exit of Subhas Bose from the party, Nehru's power grew beyond all opposition. Even before independence, Congress deliberated on the steps to usher in, in a socialist state. The Bombay Plan of 1944 proposed state intervention in building infrastructure and basic industries. Nehru could rope in even leaders of corporate industry after independence in supporting his Industrial Policy Resolution of 1948 which tightened the screw on private enterprise. Three sectors were entirely reserved for the state and six others as a partnership between it and free industry. Nehru introduced the controversial Industries (Development and Control) Act in 1951. After much persuasion, the term ‘Control’ in the act’s title was changed to ‘Regulation’. Nehru was more accommodative to market competition in the initial stages. In the first Five Year Plan, 43% of the total investment came from the private sector. A subtle shift came about in a few years. The government nationalised Air India in 1953 by buying the majority shares against the company board’s wishes. This was a blow to private sector initiative as it proved the government’s authoritarian power to take away or dilute the scope of their business if it wanted to. Imperial Bank was taken over as SBI in 1955 and Life Insurance Corporation was nationalised in 1956.

Whatever beneficial effects materialized during Nehru's socialist crusade was a byproduct of abundant harvests facilitated by good monsoon rains. When it failed, the country was brought to its knees. This book explains the food crisis in the 1960s which may feel like an incomprehensible thing for the new generation of readers used to seeing mountains of surplus grain generated by the Green Revolution. At the dire prospect of dwindling foreign exchange reserves, India was forced to import food grains in a kind of ship-to-mouth subsistence. Prime Minister Shastri appealed to the people to give up a meal a week and restaurants were directed not to serve evening meals on Mondays. Indira Gandhi requested assistance from US with the utmost reluctance owing to her affiliation to the USSR and obtained support in the form of PL-480. But Indira’s tactless criticism of the US over Vietnam while continuing to receive food aid from them turned the experience sour.

It may be argued with some conviction the case for some amount of Statism in the Nehru era in the light of other economies trying it successfully at the time. But a relaxation was warranted in the Indira era, but she tightened it to kill off free enterprise. The MRTP Act of 1969 curtailed the growth and expansion of any company that had an asset base of over Rs. 20 crores. All the expansion plans would be subjected to close scrutiny by government officials and exemption granted on a discretionary basis. This was a recipe for corruption and was promptly milked by the Congress. Indira damaged India's economy to score political points. She wanted sole credit for populist measures. Just three days before the nationalization of fourteen private banks in 1969, she ousted her rival, Morarji Desai as the finance minister. This was a cheap trick to secure her credentials as a leader keen on bringing about social and economic equity through government policies. Even the governor of RBI was kept in the dark till the last moment. Coal mining was nationalised in 1973. In the same year, she amended FERA and restricted foreign equity to just 40 per cent in a company. Again, exemption was granted in specific cases! 881 companies applied for exemption, but were granted only to 150. Within four years, 54 companies wound up their operations in India. 1973 was a crucial year for she nationalized general insurance, textiles and petroleum companies too, in that year. Such is Indira’s legacy. Bhattacharya offers a sharp criticism on the waywardness of the state.

The book traces the gradual rise of the socialist economic policies enunciated by Nehru and Indira and the quick though intermittent bouts through which they were scrapped. The influence of Left political parties and Left-leaning advisors of Congress ministers provided ideological sustenance to the idea of the state leading the industrialisation effort till the 1980s. The final departure from Statist policies happened in the 1990s and the final nail in the coffin was driven by the Narendra Modi government in 2014, when the Planning Commission itself was dissolved.

AKB makes a critical analysis of Rajiv Gandhi's legacy and debunks the myth that he was the father of the reforms in the telecommunication sector. Contrary to popular belief, he claims that Rajiv Gandhi made little contribution to the telecom sector and instead encouraged an indigenous thrust which only delayed the onset of the telecom boom in the country, which was moulded in 1994 and 1999 by Rao and Vajpayee. Moreover, Rajiv is identified as the real culprit behind the acute balance of payments crisis in 1991 that forced the country to sell a part of its gold reserves and pledge another part in London to ward off default in foreign debt servicing. Ambitious growth plans during his tenure as prime minister was structured around debt through deficit financing and repayment was due when he was out of power.

As a bonus to readers, the author has listed twelve disruptions that can be expected in the future. They are: India going presidential, simultaneous elections to Lok Sabha and state assemblies, scrapping of articles 370 and 35A of the Constitution, Ram Mandir, One Country One Language policy, delimitation of electoral constituencies, bank privatisation, corporatization of agriculture, private sector in railways, Universal Basic Income (UBI), dismantling the Indian Administrative Service and change in the financial year. The actual abrogation of Articles 370 and 35A conferring special privileges to Kashmir last month came as a tribute to the political acumen and sharpness of perception of the author. It must also be noted here that he guessed this would come about by November 2020 when the ruling NDA might obtain a majority in the Rajya Sabha.

The book is easy to read and the analysis is well-balanced. Narendra Modi is criticized for demonetisation as it is thought to have provided no immediate results aimed for by the designers. A lot of information is cramped in these pages that serve as a goldmine for discerning readers.

The book is highly recommended.

Rating: 4 Star