Equity, Efficiency, Unanimity

There is no consensus over reform, says Yashwant Sinha. We agree, says the Congress party a few days later, even as its leading reformer who is currently chairing its Lost Souls Club _ Manmohan Singh _ anguishes over a Hobson's choice. And, of course, there are the bits-and-pieces parties who, whether in government or in opposition, voice similar sentiments.

When is it all about? When they talk about the absence of consensus over reform, what the politicians are really asking for is unanimity.

Unless everyone agrees, they are saying, we will not allow reform to proceed, especially if we are in the Opposition but, sometimes, even when we are in government. It could only happen in India, of course, that everyone is agreed over the need for reform but not over its immediate practicability.

 

This, when you come to think about it, is exactly like saying that you must clean up the house but wait until it becomes practical to do so. Thus, having agreed that the house is dirty, everyone expresses a simultaneous preference _ for reasons of practicability _ for living in filth. The house may catch fire as a result but since no one is inclined to do anything about it, everyone prefers to wait for the fire to happen.

But the unanimity condition is impossible to comply with, especially in a zero-sum game where one player's gain exactly equals the other player's loss. This is the reason why it is so easy to get unanimity over external issues but not over the simplest domestic issues.

Since reform is a zero-sum game in the short run, imposing the unanimity condition is, in fact, like placing a veto over reform. This is what every political party and group is seeking. In a sense, it is also pure power play, wheeling-dealing for increasing private leverage in pork-barrel politics.

The alternative to unanimity, of course, is the old majority-decision rule. If 50.01 per cent vote in favour of something, the remaining 49.09 per cent have no choice but to lump it. This is the principle on which the Westminster model works.

Sadly, throughout the 1990s, no political party has been able to win _ as opposed to stitching together by hook or by crook _ such a majority. The result is that the importance of unanimity, both across parties and within parties, has increased even further. The pace and style of reform has been consistent with this: slow and jerky.

The fact is that the existing political reality is unlikely to yield a proper majority for a single party in the foreseeable future. This means that unanimity will continue to be more important than the majority-decision rule at least for the rest of this decade.

Moreover, the presence of such a large number of poor voters makes the unanimity condition even stronger because every political party can, and perhaps does, speak for significant numbers of the poor. But is that necessarily bad news in a country where the overwhelming majority of the voters are so abysmally poor?

This question adds another twist to the tale, that of the effort to prove that reforms actually benefit the poor. Many attempts have been made in both directions. But I have yet to see a study that makes a distinction between the short run and the long run.

The fact is that in the short run, the interests of the poor will always be affected adversely and this will always lead politicians and leftist intellectuals with fat bank balances to resist a reform of the means used to transfer incomes from the rich to the poor _ which is what subsidies and rigid labour markets are all about. In other words, every landing has to be a soft one. In the continuing jostling between equity and efficiency, equity must always win.

(This reluctance of politicians to reform, incidentally, is entirely a consequence of universal franchise and not of the inherent morality of politicians. In Britain, in the 19th century, before franchise was gradually extended, the politicians always pulled for the rich).

Given, then, that reform must always give primacy to equity, how should a government manage the pace of reform? It is a sad commentary that even after a decade of trying, no political party has been able to come up with an intellectual framework within which to place its policies.

This in spite of the fact that so far all the important political parties have had a crack at government. All of them, without exception, have approached reform purely from the fiscal angle. It is no coincidence, therefore, that only finance ministers are reformers and the rest are

vetoers.

This, surely, is idiotic because if even the finance minister ceases to be reformist, as may well happen if a prime minister takes over the finance portfolio, India will really be in the soup. Indeed, it has happened twice before, once in 1970 when Indira Gandhi was finance minister and once when Charan Singh was prime minister as well as finance minister.

The answer, in the final analysis, has to lie in restoring a better balance between equity and efficiency in the minds of politicians. This can only be a slow process, especially in a situation in which unanimity plays such an important role. That is the real bad news for the poor.