On November 10, the (Weimar) republic only a day old, (future Reichsbank governor Hjalmar) Schacht was invited to a meeting and asked to help found a new moderate party, the Deutsche Demokratische Partei (DDP), which would oppose alike the socialism of the left and the nationalism of the right. The DDP itself would briefly do very well, becoming a party of academics, journalists, and businessmen, many of them Jewish, and attracting such luminaries as Max Weber and Albert Einstein. In the 1919 election, it vaulted into third place in the Reichstag, after the Socialists and the Catholic Centrum Party… In the late 1920s, the DDP, like all German centrist parties, would shrink into insignificance, squeezed from both ends of the political spectrum, particularly from the right…”
That was from Page 103 of Lords of Finance by Liaquat Ahamed. The above story is a salutary reminder to those who have been exaggerating the entry of “people like us” into politics— either on a stand-alone basis or as part of upstart political entities. These solo flights would end up as flights of fancy. In politics or public policy, there is not that much space for reason and moderation unless they are packaged and presented with emotional and other embellishments. That is why slogans (“Garibi Hatao”, Remove Poverty), movements (temples and national pride) and populist schemes (loan melas and waivers) have salience.
More certainly, however rational or needed it might be, there is no constituency for suffering pain. If all reforms and changes are about pain now and rewards later, intellectuals can kiss their political aspirations goodbye. They would fail miserably.
That is why, as this column wrote last week (“Mind the real ‘E’s now”, 19 May), educated and aware Finland is fiercely resisting reduction in pension entitlements and increase in retirement age. Last week, California voted against all proposals that would have raised taxes in one form or another, but for one proposal that prohibited salary increases for state lawmakers and officers in years in which the state would run a fiscal deficit. That proposal won 75% to 25%.
So, there we go. Bankers are either reflecting or are inspiring popular behaviour—pain for others and rewards for us. In this environment, economic or administrative reforms are not easy. Further, couching economic reforms in terms of State versus Market has always been a difficult proposition in developing countries. Even in the developed world—mainly in the US and the UK—in recent times, it has lasted about two decades. After all, all those who fret about the lengthening reach of the State fail to record that the situation had been brought about by the failures of the private sector. In the US and the UK, the State completely abdicated even its regulatory role with respect to the financial sector. The results are there for all to see.
Hence, reforms couched in terms of State versus Market are doomed to fail, especially in these times. Reforms have to be framed in terms of State versus people, to begin with. Even then, it runs into the time inconsistency problem (pain now, rewards later) and, hence, the beneficiaries are different (one generation sacrifices and another gains). That is why packaging and managing the process of change and reform matter as much as their intellectual foundations do.
Importantly, intellectuals have to battle their own egos. Most of them resist the prospect of having to explain their proposals to politicians and bureaucrats and letting them take credit for them. To the extent they fail to resist that basic human instinct, they will have succumbed to the same impulses as anti-reformers do. In other words, if change is the objective and not personal pride, then the process of change must be managed politically and the credit for success should be dedicated entirely to the political or bureaucratic masters.
Intellectuals should be prepared to work behind the scenes with politicians or bureaucrats, rather than get in the front. Thanks to Dan Drezner (http://drezner.foreignpolicy.com) and Nitin Pai, I managed to read what Stanford academics had to say about bringing their academic experience into policymaking in the context of the Iraq war. Former US defence secretary William Perry said he couldn’t remember borrowing an idea gleaned from congressional hearings or reading op-eds. Michael McFaul said the best way to turn ideas into policy was to nurture them in a place such as Stanford and then go to work for government.
Hence, what is required is for the government to facilitate lateral induction of experts into the government and for the experts to know how to disagree in private and how to cheer and endorse their political masters in public, selflessly. That sounds as much like an exercise in spirituality as an exercise in public service. If experts are incapable of it, they can continue to write op-eds, as Yours Truly is doing.
V. Anantha Nageswaran is chief investment officer for an international wealth manager. These are his personal views. Your comments are welcome at baretalk@livemint.com