With great despair over the post-World War II political environment, F.A. Hayek once said the world is full of “intellectuals whose desires have outstripped their understanding”. Perhaps, the same can be said of the National Advisory Council (NAC). Last week, the NAC recommended that the government ought to play a bigger role in acquiring land for industrial use and went on to prescribe a pricing formula. It is fatal conceit to imagine that a few “wise” persons in New Delhi can provide a formula for pricing land acquisitions in India.
Millions of relative prices guiding economic activity reflect the interplay of limited resources and unlimited wants of over a billion Indians. The basic economic problem is that as knowledge of alternative uses of resources, preferences of consumers and creative capacities of human beings are not given to a single mind, the challenge is precisely to discover optimal use of resource though the knowledge that ought to guide production plans is widely dispersed. It is this intellectually astounding problem that the price system solves. F.A. Hayek was “convinced that if it (the price system) were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as of the greatest triumphs of the human mind”.
The economy is not a system that can be organized by a formula developed in New Delhi. An economy is a self-organizing complex system, in which knowledge exists not in silos, but in the connections between elementary economic units. In fact there is deep relation between Hayek’s psychological work The Sensory Order and his work on the “knowledge problem”. Professor Barry Smith, in his essay “The Connectionist Mind: A Study of Hayekian Psychology”, says that the principle thesis of The Sensory Order is “that the specific character of the effect of a particular impulse is due ‘neither to the attributes of the stimulus which caused it, nor to the attributes of the impulse, but may be determined by the position in the structure of the nervous system of the fibre which carries the impulse’”. Learning is then a process of strengthening and weakening of neural structures. In an economy, too, knowledge lives in connections and relations between economic actors, and adaptations to emerging circumstance occur through transforming relations marked by property exchange.
What does all this mean for land acquisition? One, the NAC is blind in setting a price for land acquisition. Prices must be discovered through the process of bargaining between the owners of land and industrialists. Imposing a price formula is ignoring the knowledge on possible alternative uses of land that owners and prospective users possess. Each landowner of the Bhatta-Parsaul villages has a piece of information, which will reveal itself only through the bargaining process, and this information is useful to plan economic production. One would have thought that over 40 years of Gosplan in Russia and the concomitant abject poverty would have rung a bell or two in New Delhi, alas! Two, it is a mistake to set a common contract for all. Some members of the NAC want capital appreciation to be shared with original owners of land every time the property is sold. The idea is sheer nonsense from a theoretical point of view. A “contract” is a method of sharing economic value across time. And in the same way that different flavours of toothpastes cater to our distinct taste buds, different contracts cater to differing time preference and risk preference. Some farmers may bargain for a lump-sum payment of a portion of expected future capital gains, others may wish to share the risk and profits by bargaining for shareholdings in the proposed industrial venture. One can imagine a wide variety of risk-sharing arrangements. It is economically inefficient and politically tyrannical to force all farmers to accept identical contracts. Three, the NAC’s proposal of requiring 70% farmers to agree to part with their land for any acquisition to happen, in which case the remaining 30% maybe forcefully evicted, is rather arbitrary. An appreciation of the “knowledge problem” is central not only to devising sound economic policies, but also for nurturing good political health. The decision as to what proportion of the owners must provide their consent ought to be determined at the lowest administrative level. Chandrasekaran Balakrishnan—an economist at the Planning Commission—in a recent paper tells us that B.R. Ambedkar had noted the significance of knowledge problem in politics nearly two decades before Hayek’s 1945 seminal American Economic Review paper titled “The Use of Knowledge in Society”. Ambedkar says, “that a Central Government for the whole of India could not be said to possess knowledge and experience of all various conditions prevailing in the different Provinces under it”.
As for the NAC and the wise men and women in New Delhi, allow me to quote Karl Popper: “If our civilization is to survive, we must break with the habit of deference to great men. Great men may make great mistakes.”
Vipin P Veetilis a research guide at Centre for Civil Society, and a student in the PhD programme in Economics, Iowa State University
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