Classical economics has much to learn from the disciplines of psychology and behavioural economics. What we do not recognize in economics but is pervasive in life is the phenomenon of what is best called “created targets". The stark examples come from sports. Think of soccer. You construct two rectangular bar arrangements at two ends of a field and give a ball to a group of people and tell them that those wearing red shirts should kick the ball through one set of bars and the ones wearing blue should kick it through the other set.
Moreover, you will keep count of which side manages to do this more frequently. Soon, you will have people falling over one another, willing to take injuries, to get the ball into or to stop the ball from going into those rectangles. You do not need to give the players money or apples or oranges or clothes. For them, the joy of getting the ball into the rectangle and to watch the score is enough motivation.
Indeed, you can, over time, get onlookers identifying with team A or team B and cheering to see them score, so much so that many will try to get away from work and leisure to watch this “game" and even be willing to pay to boost the chances of the team they identify with; not to mention drinking beer and then beating up supporters of the other group.
Life is full of such created targets, and this has implications for how societies or economies functions. Worryingly, electoral politics is often like this too. Once people begin to back Democrats or Republicans, or Tory or Labor, after some time, it becomes like ordinary people supporting Liverpool or Chelsea. It is not the manifesto or ideology of the party that prompts the support (even if that was the original impetus). One backs Republicans only because the joy of seeing Republicans win is the same as the joy of seeing Liverpool score.
For politicians, corporations, and powerful organizations, this human faculty of created targets is an opportunity. Once a target gets into people’s heads, that can become an end in itself, and shifting that goal post around can result in huge shifts in societal outcomes.
When I worked at the World Bank, the division that produced the Ease of Doing Business rankings across countries was my charge. It soon became evident that for many countries, moving up this ranking ladder had become an end in itself. Some wanted to move up the ranking ladder, not for the sake of greater growth or higher standards of living or a reduction in poverty or more jobs, but merely to see their country’s name move up the ranking ladder. That was the game, like scoring a goal in soccer. This made me acutely aware of the fact that these rankings can be misused.
The Payoff from Patriotism
Another example pertains to patriotism. To some orthodox, neoclassical economists, patriotic preference is a hardwired part of utility maximization. But once we are aware of behavioural economics and created targets, we know that patriotism can be fuelled and whipped up, at times unwittingly but often deliberately, by elites and political leaders, and for a reason.
Patriotism is good fiscal policy. It allows political leaders to recruit soldiers without having to pay them the breakeven wage that they would demand if they joined the forces purely as another job. For whipping up the emotion that your country is more important than others, and that the lives of those who live in your country are more important than the lives of people in other nations, patriotism can be a useful emotion. It allows us to underpay soldiers and garner huge fiscal savings.
As must be evident by now, these created targets, impossible according to mainstream economics but prevalent all around us, can be a major force for good and for bad. Societies can be steered in diﬀerent ways. And along with that will arise questions of the legitimacy and illegitimacy of such shifts. These grounds of legitimacy will never be free of controversy, but if we can have some consensus, at least the most egregious violations of legitimacy will be obvious to all and hopefully will create forces to thwart them.
An important concept which has a bearing on societal legitimacy is the very meaning of force and coercion, which is widely misunderstood by economists as well as social scientists. Traditionally, the idea of legitimacy has been contrasted with force. However, on close scrutiny, even this seemingly obvious contrast between “control by force" and “legitimate government" runs into difficulty. The source of the problem is ambiguity in the meaning of force and coercion and, by their obverse, voluntariness.
There is a widely held view that if a person chooses voluntarily from a set of options, then he or she cannot be said to be coerced. This “neoclassical criterion" is misleading. The reason why this problem has persisted is that coercion is not easy to define. In the absence of a commonly accepted definition, the other way is to think of stories where we all agree that coercion has occurred, even though we cannot define coercion (in the same way that children can identify elephants without being able to define them).
In that spirit, consider a person, P, who gives up his watch to a robber, R, who in a dark alley, with a gun in his hand, asks for it. Clearly, in this situation we would all agree, Milton Friedman included, that P did not give his watch to R voluntarily, that this was a case of coercion or force. Now go back to the neoclassical criterion. What happens in this story is that R gives P a choice: give me your watch (x) or give me your life (y)—that is what the gun is meant to say. P then chooses the option he likes more (in fact, by quite a margin), namely x. By the neoclassical criterion we would say that P was not coerced. This shows that the neoclassical criterion is ﬂawed.
It is this ﬂaw that tilts neoclassical economics toward a rather pervasive view of voluntariness. From exploited miners working 12 hours a day to women choosing to do all the housework with no help, these are all treated as voluntary and non-coercive.
The Republic of Beliefs
Social norms can take society to outcomes that are self-enforcing. In all societies, cultural norms and their accompanying rules of how one should behave and norms of how one should be punished if one violates those rules are examples of the kind of control over individual behaviour that can be achieved by such means. In the Indian context, this is true of punctuality norms, certain kinds of group discrimination, and even phenomena like child labour.
One of the most important ideas that come to light as a result of this understanding is the thin line that divides social outcomes that are achieved by the law and the ones achieved by seemingly more endogenous processes such as social and political norms, people’s culture, and customs.
To social scientists, one of the most troubling concepts is power. We can all see its ubiquity and importance, but find it very difficult to lay our hands on quite what it means. The big mistake is to expect political power to be grounded in something visible and big. That it can be a manifestation of thousands and millions of ordinary people going about their daily chores with their beliefs about what others may do and what others expect them to do escapes our grasp.
But, in truth, lots of gigantic forces and movements have roots in what is seemingly small and trivial. There is something chilling in such a scenario since the politically grotesque can emerge from almost innocuous actions and beliefs of a large number of ordinary people.
In his seminal essay, The Power of the Powerless, Czech political dissident Václav Havel shows how each individual going about his or her quotidian tasks can unwittingly unleash vicious forces, persecute groups, and prop up leaders who are tyrants.
The Premium on Loyalty
Havel named the system he was describing “post-totalitarianism." This runs on “auto-totality," in which the oppression is perpetuated by not just the rulers but also ordinary people, from the greengrocer who proclaims “loyalty" to the system by putting up sycophantic posters to the party official who displays her “loyalty" by harassing any greengrocer who does not display his loyalty. It is a human predicament; as applicable to a communist dictatorship as it is to right-wing totalitarianism and to anti-communist vilification as was evident during the period of McCarthyism in the United States.
Havel wrote his famous essay in 1978, while under house arrest in North Bohemia in a surreal setting. Across the field from his home, the police made a watchtower on stilts, which Havel referred to as the Lunokhod, since it resembled the Soviet moonwalker device. The police ran shifts on that tower and kept a continuous watch on him.
Reﬂecting his belief that the perpetrators of a post-totalitarian system are also victims of the system, Havel felt instinctive sympathy for the police who kept watch on him. As his biographer later noted, “Havel bore no grudge against his watchers, most of them local policemen. Often, Havel would empathize with the policemen’s ordeal and go out of his way to make them feel at ease by engaging them in small talk." It was this remarkable ability of his to view the world from others’ shoes that enabled him to develop such a deep, human understanding of how political power is sustained.
The dictator is propped up and allowed to tyrannize entirely because of mutual fear of ostracism among citizens. The dictator need not have the capacity to hurt anyone directly. As David Hume perspicaciously observed in his celebrated essay Of the First Principles of Government: “Nothing appears more surprising to those who consider human aﬀairs with a philosophical eye, than the easiness with which the many are governed by the few; and the implicit submission, with which men resign their own sentiments and passions to those of their rulers."
Once this argument is understood, it becomes clear that there is nothing specific to oppression under a communist regime, even though that was the context that prompted Havel to write. In essence, one can see the same argument play out in the case of fascism and also when Senator Joseph McCarthy triggered a process of red-baiting in the United States in the early 1950s.
It all began with a fear-mongering speech by McCarthy to the Women’s Republican Club in West Virginia, on February 9, 1950, where he claimed: “In my opinion, the State Department, which is one of the most important government departments, is thoroughly infested with Communists. I have in my hand 57 cases of individuals who would appear to be either card-carrying members or certainly loyal to the Communist Party." This became a period of vitriol and witch hunt because once a person was charged as being a communist or “un-American," anyone who tried to challenge this was promptly labelled a communist or un-American.
The definition of a “disloyal person" can spread almost by infection—a person who trades with a person who is labelled disloyal gets labelled disloyal—the label communist or un-American could travel from one person to another merely by a person trying to contest the label being put on someone else.
As Supreme Court Justice William Douglas, who played a major role in bringing an end to McCarthyism, wrote in the New York Times in January, 1952: “Once we had confidence in each other. Now we have suspicion. Innocent acts become tell-tale marks of disloyalty. . . Suspicion grows until only the orthodox idea is the safe one. Those who are unorthodox are suspect."
Luckily, opposition to McCarthyism built up, led by prominent senators, both Democrats and Republicans, some prominent business leaders, and judges. By early 1954, there was a groundswell of opposition behind what came to be called the “Jo Must Go" movement. On December 2, 1954, the Senate voted to condemn McCarthy, and that was pretty much the end of the McCarthy period.
What is interesting is that no law had to be changed to trigger McCarthyism. There was a shift in the focal point of society, of what we expected of one another. Senator McCarthy probably played a role in triggering this change, but once it got going, he did not need to wield a whip. It was interpersonal fear that made the movement gather strength, leaving individuals powerless against it. His role was merely that of shifting the focal point.
Extracts with permission from The Republic of Beliefs by Kaushik Basu published by Princeton University Press .