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Photo: Reuters
Photo: Reuters

Modi’s Thatcher Moment

In 1984-85, Thatcher won against the coal mining unions and turned Great Britain decisively toward the free market

As there is calm at the eye of a hurricane, the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government enjoys a momentary respite over its fiercely criticized land acquisition bill. Having been approved by the Lok Sabha, thanks to the government’s outright majority, the bill faces its real test in the opposition-controlled Rajya Sabha. The government’s conciliatory amendments to its own bill did nothing to placate the opposition parties in the lower chamber, and they are unlikely to do so in the upper chamber.

Those who argue that extending an olive branch to opposition parties, better floor management, and the like, might win the day for the government when the bill comes before the Rajya Sabha, are naive or disingenuous. Given the overwhelming numerical superiority of the opposition parties, and the publicly stated intention of many of their leaders to cut Prime Minister Narendra Modi down to size, they would vote down even their most preferred bill in the interest of achieving tactical political advantage. And that is fair enough: the BJP did the same when they sat in the opposition, not the treasury, benches.

To the contrary, what the government can, and must do, is to draw a line in the sand, and articulate a principled and conceptually grounded case for their version of the bill, exposing the arguments of opposition parties as hollow, meretricious, and opportunistic. If the bill is defeated in the Rajya Sabha—as it surely will be—the government will then have the moral authority either to call a joint session of Parliament, or, failing that, re-promulgate an ordinance upon the adjournment of the budget session.

The principal argument that must be countered is the critics’ refrain that the government’s bill is “anti-farmer", because it will forcibly dispossess small agricultural producers in the interest of large development projects that, allegedly, will benefit mainly the rich. The obvious and correct retort is that accelerated growth and development, which raise incomes and create employment opportunities, will be of greatest benefit to the poor, most especially poor farmers at present living little better than a subsistence existence. What is more, survey research suggests strongly that most farmers would move off the land, if they could. According to a recent Lokniti survey, for instance, 62% of farmers surveyed said they would give up farming and move to better paying urban employment, if that were an option.

The usual objection is: if that is the case, why do away with the consent requirement and forcibly acquire land? Surely it is patronizing to assume that farmers don’t know their own interests or are presumed to be irrational or culturally hidebound if they don’t sell?

Yet, this is fundamentally to misunderstand the economics of “eminent domain". Given that many contiguous parcels of land typically need to be acquired for a large project intended for public use (such as building a highway), this creates what economists call the “hold up" problem: the owner of a single parcel may threaten not to sell, and thereby try to extract all of the economic surplus (that is, the difference in value of the land as a whole in its new use and the sum of the individual valuations of each parcel in its old, lower value use) from the putative buyer. As each seller has a similar incentive, consent may not be won, and thus, a socially beneficial project will be thwarted due to a collective action problem. The coercive power of government to acquire land forcibly and pay fair market value for it short-circuits this bargaining problem and promotes the social good—in this instance, economic development.

The problem, thus, is that farmers (or anyone else) may not voluntarily sell their land—not because they are irrational, but rather because they behave as the hyper-rational “homo economicus"!

That the greater good sometimes requires that individual property rights be overridden—while anathema to the textbook libertarian, who lives in a perfect, Coasian world of zero transactions costs—is widely accepted, not just by the left, but by the sensible centre-right, in mature democracies, most notably that bastion of individual liberty, the United States. Indeed, in a landmark (and admittedly controversial) 2005 Supreme Court decision, Kelo vs. City of New London, the majority ruled that the benefits of economic development constitute a legitimate extension of the doctrine of public use—much as the NDA’s land bill implicitly seeks to do.

The NDA’s land acquisition bill is doubtless far from perfect, but it is a major improvement over the flawed legislation inherited from the Congress-led United Progressive Alliance government, cobbled together by a cabal of leftist academics and activists to whom Sonia Gandhi and her coterie were in thrall; if it stays on the books unaltered, India’s prospects for economic takeoff will be grounded, and millions will remain mired in poverty and without the prospect of economic or social advancement.

In 1984-85, British Prime Minister Margaret Thatcher stared down the coal mining unions and won. The hard-fought victory cemented her political credibility and turned Great Britain decisively away from public ownership and state planning toward private ownership and the free market.

The land acquisition bill is Narendra Modi’s Margaret Thatcher moment.

Every fortnight, In the Margins explores the intersection of economics, politics and public policy to help cast light on current affairs.

Comments are welcome at views@livemint.com. To read Vivek Dehejia’s previous columns, go to www.livemint.com/vivekdehejia-

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