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Business News/ Opinion / Columns/  The case for an economy of permission-less exchanges
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The case for an economy of permission-less exchanges

Requiring business permits stifles prosperity just as requiring speech permits will choke ideas

Photo: MintPremium
Photo: Mint

There is widespread recognition, especially among readers of newspaper columns, that we need free speech to exchange ideas for human creativity to flourish. And yet, what is essentially the same idea, freedom of exchange in the marketplace for goods and services, does not get the same attention. We tend to ignore that the government requires us to get all kinds of permissions even to engage in a simple market exchange.

We intuitively understand the case for permission-less exchange of ideas and speech. Imagining a world where we need permission before speaking gives most of us shivers. Add to this the practical consideration that if we needed permission to express our thoughts and ideas, then we may not bother expressing most of them, either because they would not be allowed by those in power, or because it’s too much of a bother getting permission to express our ideas. Only our most important ideas, or safest ideas, or those we most diligently pursue, or those that appease the authorities will be uttered. But most creative and innovative ideas will not pass that test, as they often threaten the status quo.

Leaving aside dissent and protest, can we trust bureaucrats to recognize the depth of Kabir’s dohas (couplets) or the courage in Bharatiyar’s poetry, or the patriotism hidden in Indori’s polemics? Will they find lyrics like “beedi jalaile jigar se piya" absurd and in violation of the mandatory tobacco disclaimer? Or will they recognize Gulzar’s genius?

We know the answers to these questions. These examples of artistic expression are not great because some creative tsar deemed them so. They are great because they won in the marketplace of ideas and artistic expression. The requirement of permissions, either taken explicitly (like a censor board certificate) or implicitly in the context of a threat of violence by fringe groups, severely infringes our free expression because it gives power and control to a single or small group. It shrinks the potential availability of songs, poems, movies, novels, short stories, comedy and forms of expression we haven’t yet experienced or been exposed to. It limits progress. This is well recognized, given the extent of protests that are raised against infringements of speech.

Why, then, are we willing to tolerate a far worse system of permits for exchanging goods and services? Why are those terrible consequences not so intuitive? Perhaps, because we all express ourselves in some form, but only a few of us have tried starting a business or taking an innovation to market.

Our lived experience with speech and business are, thus, not symmetric. Unfortunately, the stifling effect of permits on speech, business or innovation are similar. They impose a high burden on entry and kill innovation.

In India, there are really three kinds of permissions imposed on the exchange of goods and services. The first is the permission of regulators. More than half the country was born after liberalization, and may not remember the days of India’s Licence-Permit Raj, but those of us who have lived through socialism remember its horrors. And while the Licence Raj was partially dismantled, India is still very much a Permit Raj. The culture of requiring permissions to buy virtually anything other than for personal consumption needs is staggering. The worst experiences involve attempts to buy, sell, use, lease, partition and gift land. While it may seem innocuous to get permission from a regulator, Indians face unintentional delays in processing permissions because of limited state capacity, and intentional ones to extract rents and bribes. This has made land markets thin and inefficient, consequently depressed prices, and reduced the wealth of most Indians, especially farmers. The same applies to labour services, where the permissions required to hire willing workers for even the simplest of tasks is so prohibitively costly that 80% of them are hired informally.

A second kind of permission required is from competitors. It is rarely in the interest of an incumbent to allow new rivals. This was perhaps why Indian industrialists welcomed the permit raj in “mixed economy" manifestos like the Bombay Plan, to retain their incumbency advantage and limit competition. Even today, many neighborhood clearances and no-objection certificates are effectively permits required from incumbents. Large and rich incumbents have a huge advantage in getting and keeping permits. Young entrants, start-ups, and those with little capital or few resources are easily thwarted from entering the market.

A third kind of permit in India now is a de facto judicial permission. Almost everything is a matter of public interest, and virtually anyone can file a public interest litigation and get an injunction to block an enterprise. And unless the judiciary effectively gives its nod, the matter is tied down for ages. Winning bids for tenders and auctions tied up by courts are examples of this kind of de facto permit, where unless judicially allowed and resolved, the exchange cannot take place.

The effect of these permit requirements is the same as thwarting speech. Beneficial and consensual exchanges in many areas and sectors are either explicitly disallowed or never attempted in the face of restrictions. This makes every Indian worse off.

Moving to an economy of permission-less exchanges will make all Indians richer and freer, just as unpoliced speech makes our minds richer and freer. India ended its Licence Raj and lifted 270 million Indians out of poverty. It’s time to end the Permit Raj.

Shruti Rajagopalan is a senior research fellow with the Mercatus Center at George Mason University, US

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Updated: 23 Nov 2020, 09:23 PM IST
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