Why systems correct faster

Does plurality of information and choice, whether economic or political, help reduce economic disasters? It would seem so. As Amartya Sen has famously pointed out, democratic India has seen fewer famine disasters. And, although some die-hard communists from Jawaharlal Nehru University have sought to 'correct' history by saying that very few people died in the Chinese famines in the late 1950s, the fact remains that even fewer would have died if China had been a democracy. The same sort of thing can be seen in other countries as well, most notably in Africa. So the point can be taken as made that democratic governments are far more responsive to the actual or anticipated plight of the people.

This seems to be true not just of famines but also in other matters such as, for example, the protection of the environment. China has a far worse record than India "" and India's record is nothing to write home about. Even in the matter of inflation, in a highly competitive political environment, governments respond to the problem more quickly. In India, for example, the response time has become much less, compared to what it used to be when the political challenge to the ruling party was less serious. India witnessed anti-inflation demonstrations even as late as the mid-1970s, which became large enough and violent enough to threaten the survival of the government. Today, correctives get applied well before matters reach that stage because of the deafening crescendo of instant commentary that tracks the numbers, and so the average rate of inflation has been dropping steadily. Likewise, the attempt to mitigate the plight of the farmers may not have worked very well but it has been made much more quickly than it used to be in the past.

The same effect of plurality of information and choice can be seen in the international financial system. There used to be a time when everyone looked to the IMF's annual assessments to see not only if there was trouble brewing, but also to its bail-out package. Today, as has been ably pointed out by two researchers "" Devesh Kapoor and Richard Webb "" no one much bothers about the IMF. The warnings are issued round the year by dozens of tracking agencies and both preventive as well curative measures are available aplenty from elsewhere. As Kapoor and Webb put it, " The Fund no longer has the mystique, and its imprimatur no longer carries the weight previously associated with the institution, despite the continuing appearance of it being an all-powerful and non-accountable institution." The net result, of course, is a massive reduction in the potential for financial instability. Things can still go wrong but the chances that they will go wrong horribly have been reduced. Quite simply put, there are fewer crises now because the spread of information, instant commentary and market feedback ensures prevention.

One can ask, if course, if there is a tendency on the part of the governments to over-respond. For example, would a smaller increase in the procurement price of rabi wheat have delivered the same results when it comes to assuring public procurement of grain? Or do the stock markets, which base their decisions on information and analysis gleaned from scores of sources, yo-yo rather more wildly when they are in the process of correction? Some will argue that they do, but surely it is also a fact that course corrections take place more quickly now, so that the old boom-to-doom episodes have become less frequent. In short, markets make systems work and respond better and faster "" in politics, ideas, and economic management.