‘Competition is liberty’

Guest Columns by Sauvik Chakraverti,

The Newindpress on Sunday, 2007-2008

‘Competition is liberty’

While trumpeting the merits of capitalism, and claiming our collective respect accordingly as ‘wealth creators’, the big business houses of India continue to play the old game of buying favours: what economists call ‘rent-seeking’.

One would think that liberalism would be their ‘ideology’, their politico-economic philosophy; that they would champion free enterprise and private property (recall that the Tatas lost Air India to Indira Gandhi) — but they are friends of collectivists! If there is a need to cosy up with Marxist Communists to get cheap land for a cheap car-factory, Indian ‘capitalists’ will do it. They have no ‘ideology’; for them expediency is everything. In this they are no different from the major political parties.

This manner of big private companies supporting illiberal regimes is not new. Many big German companies supported Hitler. Top personages of India Inc. show up regularly at photo-ops with Narendra Modi and Buddhadev Bhattacharya. This is because they have joined the socialist Indian state. This is the result of the Faustian bargain they made decades ago, by which they obtained full control over a huge internal market: ‘import-substitution industrialisation’. In their turn, they accepted a large public industrial sector (the ‘mixed-up economy’), and they championed ‘deficit financing’ by the central planner and his central banker. At every Union Budget, they went centre-stage in choruses of approval.

As private businessmen, India Inc. has never mounted an ‘ideological attack’ on socialism, planning, Keynesianism, isolationism, collectivism, employment generation and all the false ‘theories’ the State upholds and teaches. Private educational institutions run by India Inc. inhabit the same socialist paradigm. There is a Tata Institute of Social Science, a Birla Institute of Technology, Bajaj owns a reputable management institute, and Ambani, Mahindra and Shriram all run swank schools. The library of the Delhi School of Economics is named after Sir Ratan Tata. This shows that India Inc. stood by, expecting to gain, as all these false theories ran amuck. But have they really gained? After all, if your theories are false, can your practice benefit?

Examine the practice: High tariff walls mean a ‘division of labour’ that is ‘internal’. Thus, you can sell Ambassador cars — but only internally. And who is your biggest buyer? The State. Similarly, state-owned bus companies are the biggest buyers of Tata buses in India. We, therefore, have big government and big capital hand-in-glove, circulating fiat paper money among each other. But is that real, long-term gain? Real Economics is about the long term.

When Henry Ford made the Model-T he was hoping every American would buy one. But our entrepreneurs made cars and buses for the State! India has a huge internal market, but if the majority are poor, there is no depth to that market. India Inc. cannot prosper if 60 per cent Indians are poor. The very fact that poverty is lessening with ‘liberalisation’ means that free markets are good for the poor, and the theories of the past are all wrong.

A pillar of classical liberalism is Jean-Baptiste Say’s Law of Markets. The law holds that when any good or service is sold, demand for all non-competing goods and services is automatically generated. That is, when someone sells fish in a competitive market, he immediately possesses the means to demand everything else the market has to offer — from clothes to home appliances, and from cars to chocolate. The sale of X gives rise to the demand for all non-X. (Other Xs have to compete.)

Thus, production and sale are the driving forces of markets, not consumption and demand. It is this law that the Keynesians deliberately distorted to ‘supply creates its own demand.’ But the supply of plums does not constitute the demand for plums! Rather, it constitutes the demand for whatever the supplier is destined to acquire in exchange for the plums.

It is this basic misunderstanding of how markets work that lies behind India Inc.’s support of cheap money policies and isolationism. They believe that if the State prints money and puts it into circulation, much of this ‘new wealth’ will come their way. This is their fatally false economics, relying on government-induced consumption boosts. And they have a hand teaching it, because it is an ‘ideology’ they uphold.

An exact understanding of Say’s Law of Markets would find the best policy would be to liberate each and every market, thereby instituting an ‘international division of labour’, so that goods and services from all over the world are available in every Indian bazaar. Say’s observation of depressed markets applies totally to India’s socialist heydays: “Sales are sluggish not because money is scarce, but because other products are.” This truth is what we are witnessing today in a limited way. We see that when a Sony TV, a Honda City, a Nokia phone or an iPod are sold, our markets hum with frenetic activity. This activity was noticeably absent when everything 'swadeshi' came with a decade-long waiting period. Raising the pitch of this market activity is the only way to help the poor (and consequently the rich), not state-directed ‘welfare’ and ‘development’, ‘poverty alleviation’ and ‘employment generation.’

Further, fiat paper money put into circulation by the State does not generate either demand or employment: it causes inflation, which is a tax on the poor, making them poorer. Real employment and real wealth depend on real goods and services being produced and exchanged. There are no short cuts to prosperity. The State cannot create prosperity either through legislation (minimum wages) or through injections of fiat money (inflationism). Commerce creates prosperity, if freed from the State.

But if commerce is completely liberated, competition will be anarchistic, as it should be. The French classical liberal Frederic Bastiat said, “Competition is liberty, and the absence of competition is tyranny.” India Inc. doesn’t want to compete. They fear Liberty. They want the State to continue keeping foreigners out: behold the protectionist antics of Kamal Nath. There is a 400 per cent customs duty on wine so that Indians are tyrannised into buying Old ‘Monkey’ rum; there is a 200 per cent tariff on used car imports so that millions are tyrannised into buying new motorcycles. Liberalism means consumer sovereignty. India Inc. must come to terms with that. It is either capitalism or cronyism. They must choose their ‘brand’ of philosophy, their 'principles of politics'.