Hong Kong Miracle
John Cowperthwaite was a British civil servant. He was in charge of Hong Kong as Financial Secretary from 1961 to 1971. From a website about him: “He was central to designing and implementing the economic policies that enabled Hong Kong’s remarkable post-war economic growth. When he arrived in Hong Kong in 1945 it had a per capita income of only 30% of its mother country, Britain. By the time Hong Kong was reunited with China in 1997 it had matched Britain’s gdp/capita. And now it is 40% higher.”
From an article about Hong Kong in Foundation for Economic Education in 2014 by Lawrence Read: “What makes [Hong Kong] so free is music to the ears of everyone who loves liberty: Relatively little corruption. An efficient and independent judiciary. Respect for the rule of law and property rights. An uncomplicated tax system with low rates on both individuals and business and an overall tax burden that’s a mere 14 percent of GDP (half the U.S. rate). No taxes on capital gains or interest income or even on earnings from outside of HK. No sales tax or VAT either. A very light regulatory touch. No government budget deficit and almost nonexistent public debt. Oh, and don’t forget its average tariff rate of near zero.”
Here is more from Read:
A Scot by birth, Cowperthwaite attended Merchiston Castle School in Edinburgh and then studied classics at St Andrews University and at Christ’s College at Cambridge. He served in the British Colonial Administrative Service in HK during the early 1940s. After the war he was asked to come up with plans for the government to boost economic growth. To his credit, he had his eyes open and noticed that the economy was already recovering quite nicely without government direction. So while the mother country lurched in a socialist direction at home under Clement Attlee, Cowperthwaite became an advocate of what he called “positive non-interventionism” in HK. Later as the colony’s Financial Secretary from 1961 to 1971, he personally administered it.
“Over a wide field of our economy it is still the better course to rely on the nineteenth century’s ‘hidden hand’ than to thrust clumsy bureaucratic fingers into its sensitive mechanism,” Cowperthwaite declared in 1962. “In particular, we cannot afford to damage its mainspring, freedom of competitive enterprise.” He didn’t like protectionism or subsidies even for new, so-called “infant” industries: “An infant industry, if coddled, tends to remain an infant industry and never grows up or expands.” He believed firmly that “in the long run, the aggregate of the decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is likely to do less harm than the centralized decisions of a Government; and certainly the harm is likely to be counteracted faster.”
…To Cowperthwaite, the planner’s quest for statistics was anathema. So he refused to compile them. When Friedman asked him in 1963 about the “paucity of statistics,” Cowperthwaite answered, “If I let them compute those statistics, they’ll want to use them for planning.”
Hong Kong has consistently topped the economic freedom rankings. (That may change in the coming years depending on China’s recent interventions.) Its per capita income today is almost $50,000. (India is at $2,000.) Cowperthwaite’s policies of non-intervention and letting markets work laid the foundation for making Hong Kong an economic powerhouse and an island of prosperity.
Tomorrow: Part 5
Leaders and Nations
To be a leader of a nation is to be able to shape its destiny – for better or for worse. The impact leaders leave can stay on for a long time – and in many cases, can be hard to undo even if the impact is negative. Therefore, who the leaders are and the decisions they make become important for us to discuss and understand.
Some leaders have guided their countries to prosperity – the Founding Fathers of the US who set the rules via the Declaration of Independence, the Constitution and the early decision in the newly created Republic, Emperor Meiji of Japan who led the Meiji Restoration with the adoption of Western ideas and production methods, Lee Kuan Yew of Singapore who transformed a small island state into one of the richest in the world, Park Chung-hee who laid the foundation for South Korea’s growth through education and exports, John Cowperthwaite who made Hong Kong into the bastion of economic freedom, Deng Xiaoping who laid the foundations for China’s economic rise.
There are other leaders who had power for a long time, but failed in creating prosperity. On one side are the dictators who caused great harm to their nations – Germany’s Adolf Hitler, China’s Mao Zedong, Soviet Union’s Joseph Stalin are three that stand out in the 20th century. On the other side are the leaders who had the opportunity with the power they wielded but left behind bad economic legacies – every country that is not prosperous today has had one or more leaders whose decisions doomed the people.
India is one such nation. India’s first two significant Prime Ministers – Jawaharlal Nehru and Indira Gandhi – led India for 33 of the first 37 years after 1947. Both had the opportunity and power to make India prosperous, and yet failed. Even as the Indian people blindly worship the leaders, there is limited discussion on their flawed decisions. Their leadership styles were very different, but the choices they made had one thing in common – continuity of the rules that stifled entrepreneurship and limited economic freedom, rules that become harder to undo with each passing year, rules that perpetuated poverty.
The most important responsibility they both had was to undo the legacy of the past that had created the world’s biggest anti-prosperity machine. Neither of them dismantled it. They refused to learn from the economic successes of other nations. In their own way, each of them was an “unfit” leader – for the single most important objective a leader has is the well-being of the people. Popularity and populism do not translate into prosperity. That was true of the past, and that is true today: popularity does not imply prosperity. What matters is rational policy and not the popularity of the person dictating policy.
What did some leaders do differently? Why did India’s leaders fail so miserably? What can we learn about decision-making? What attributes make for good leaders and therefore good decisions? Can India rise to become a great nation? These are some of the questions we will consider in this series.
Tomorrow: Part 4
India’s leader announced a nationwide lockdown on the night of March 24 with a notice of four hours and with the most stringent rules globally. The lockdown decision will be endlessly debated in the years to come. Information about the severity of the virus was limited at that time in March. And yet, decisions had to be made – lock or not, what to lock, what to tell the people, how to handle the cases, what to do about the economy, and so on. Various leaders across the world made different decisions. India’s leader decreed the harshest national lockdown in the world – with an advance notice of four hours. (Coincidentally, the same four hours warning was given when 86% of the nation’s currency was demonetised in November 2016.)
The consequences of the damage down by the lockdown are very visible in India. A 24% contraction of the economy in the April-May-June quarter – one of the worst in the world. The economy is likely to contract by 10% for the year ending March 2021. While government officials keep talking about the rapid recovery and how things are normalising, the key question to ask is: what about all the consequences of the decision made on the lives of people? It is quite clear now that the virus is probably only a little more deadly than the seasonal flu for most people who do not have comorbidities. Have we as a nation paid a very heavy price for the grandstanding of our leader – again?
India’s decision – made by its leader – to lockdown will rank high in measures that hurt hundreds of millions. Supply chains and livelihoods once ruptured cannot be easily mended. One can of course argue that India needed time to get its health infrastructure in place and so on, and many lives were saved. We will never know for sure. But one thing is clear to a dispassionate and unbiased observer – India’s harsh and immediate lockdown announced on the night of March 24 was a Himalayan blunder.
The sad part is that this was all too expected. India’s leaders through its history as an independent nation have let the people down repeatedly and made lives worse. They had the power to do exactly the opposite. At multiple critical junctures when they had policy choices, they chose the more harmful ones. Why did our leaders make these big mistakes? Can we hope for future Indian leaders who can make the right decisions?
Tomorrow: Part 3
Consequential and Irreversible
It is March 2020. The coronavirus that originated in China is spreading through Italy and parts of Europe. Cases are showing up in other parts of the world. China did a complete lockdown of Hubei province, in which Wuhan is the largest city. You are leading a nation. What do you do?
I was tracking the trajectory of the virus in March. Here is what I wrote to some friends on March 17:
- We should stop counting coronavirus (CV) cases and publicising them. Just treat them normally as they come in hospitals. Given that (a) half of us or more are likely to contract it, and (b) most of these cases are not going to be severe, just treat them as one treats other infectious diseases. It is going to be impossible to quarantine a country like India. Might as well get over with it.
- Stopping the publishing of statistics will calm down the nation. Yes, one will keep hearing of deaths – but we have to accept that (see next point). The wealth and productivity destruction that is happening will do long-term damage.
- Deaths: India death rate is 0.7%. CV leads to 0.5% fatalities. Some overlap since the regular deaths are among the elderly. So, maybe one sees a 50% increase in the deaths. It probably won’t even be noticed unless it’s of a near and dear one.
- Indians cannot do work-from-home. Most don’t have broadband or separate rooms where they can work undisturbed for 8-9 hours daily. And with kids at home – the problem is compounded.
- Get on with life with basic precautions of hand washing which is a good thing anyway, and could actually be the best hygiene measure. Keep distance from people with colds and coughs where possible – which is also a good thing.
- Only 2 practical solutions are possible: immunity and vaccine. First will come before the second.
- CV isn’t going away anytime soon – so might as well get used to it. Else, the economic disruption will set us way back on the path to prosperity.
I echoed some of these points in a series “Unlock India” on my blog in early April. My recommendations:
- All 65+ year olds to be quarantined – families to make the decision for their own safety. Most of the deaths globally have been in older people with pre-existing conditions. In India, just 5% of the population is over 65 years of age.
- Anyone going out should wear a mask. This is for their own safety and for that of others. We are already seeing the rise of the use of masks. We need to get this going faster.
- We need to increase testing, and have people take a simple smell-and-taste test – since the loss of smell and taste seem to be the early warnings
- Those who test positive should stay at home to start with – especially if they are below 65 years of age. In most cases, they will recover on their own. If conditions deteriorate in a week after onset of symptoms, they should approach a doctor / hospital. This will also ensure that limited medical resources are used only for the most critical cases.
- Each individual needs to improve personal hygiene: maintain some distance when possible, and wash hands regularly. We should avoid crowded public spaces for some more time.
- Should outbreaks happen, those areas will need to be quarantined – think of this as a “Local Lockdown.” Instead of unlocking areas selectively and keeping a national lockdown, we need to unlock India nationally and then make decisions on which areas to lock based on the cases that emerge.
- We need to decentralise decision-making about lockdowns to the lowest level possible. Every elected representative (MPs, MLAs, corporators) should be “quarantined” in their constituency instead of living in the safety of capital cities. They have been elected by the people and are close to the ground. They should be the “chief ministers” of their neighbourhoods and make decisions on which clusters to quarantine should outbreaks become severe.
As I look back, I got the big points right. I was wrong on some points – the fatality rate is a fraction of what I had anticipated, I had missed the point about masks in the March note but had added it in the April commentary. What I thought then did not matter – but what India’s leader thought did. My thinking was inconsequential to the nation, but the leader’s decision was consequential and irreversible. And that decision – like multiple other economic decisions – was wrong by a mile.
Tomorrow: Part 2
I did a podcast recently with Ashraf Engineer (All Indians Matter) on the need for new economic and political thinking in India.
The introduction from Ashraf: “If ever there was a time for bold, break-out economic and political thinking, it is now. Our economy was tanking even before the pandemic and there is widespread social unrest. Time is running out for India to set itself right. Rajesh Jain was one of India’s earliest internet pioneers and played a role in getting Narendra Modi elected in 2014. Later, he got disillusioned with the Modi government and is today highly critical of it. On the latest episode of the All Indians Matter podcast, he talks about how the government creates barriers for prosperity, the need to return public wealth to the people, why innovative economic and political approaches are desperately needed today and his own journey as a ‘political entrepreneur’.”
You can also listen to it on Apple, Google, Spotify and Saavn.
I spoke to Sujit Nair about the recent surveys conducted by Prashnam.
Prashnam’s Friday Insights
- Insight #2: Who should be the next CM of Bihar?
- Insight #3: Do farmers approve of the new Farm Bill?
- Insight #4: Who do Bihar voter prefer?
Who and When
“The most powerful weapon on earth is the human soul on fire.” – ChangeForChange
I will end this series with what I wrote in January 2018 – words that still ring true.
The past few years, I have been spending a lot of time thinking why aren’t we Indians 10 times richer?
Once upon a time not long ago, Singapore, South Korea and China were all at the same income level as India. Today, we are at the bottom of the heap by a huge margin – with the average Singaporean 35 times richer than the average Indian. Why?
Why has our education system failed us? If you are young and not in the top 10,000 (of 2.5 crore others of your age), you will not get a good quality education in India. And if your parents haven’t saved up Rs 1 crore to send you to a college abroad, what is your future? And if you were born in rural India, your future could look even more bleak.
And let’s say you do get educated in India. What are the prospects of finding a good job? Where are the jobs? The private sector isn’t investing a whole lot. And if they are, they would rather invest in machine learning, artificial intelligence and robots. We are no less smarter than our American, German or Chinese counterparts. Why then is our future so much less bright?
We have two choices.
We can continue to discuss all the trivial issues of the world. We can discuss whether India needs a Ram Mandir or not. We can discuss whether we need more quotas in a terrible education system or in jobs as peons and sweepers. We can discuss who needs farm loans waivers.
Or we can discuss prosperity. When will we discuss how we can be rich? When will we get past the belief that poverty is not, and should never have been, our destiny?
Enough is enough. Incremental change isn’t going to cut it anymore. What India needs is a revolution. A political and economic revolution which destroys the world’s largest anti-prosperity machine that goes by the name of ‘Indian government’.
Only a new way of doing things and starting in a new direction can make every Indian ten times richer in the next ten years. And in the journey that we need to undertake, you are the only person who matters.
Will our generation lead the revolution for our nation’s transformation? If not us, then who? If not now, when?
“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” – Buckminister Fuller
The different path is the one where some people decide that enough is enough, India needs a new direction, and they have to do something about it. It is a group of people who feel they are alone – not knowing where they can find others like them. It is the path few are willing to take because they are not sure of the direction and the pitfalls that lie along the journey. For me, these are the truly patriotic Indians – who are willing to put India first, above any individual. They are Vishnu’s Kalki Avatar.
As Margaret Mead said, “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” A determined group of political entrepreneurs can ignite their passion for change, channelise their anger against politicians and their parties, leverage the power of digital technology, and create a movement that can form a government which, for the first time, will put Indians on an irreversible path to freedom and prosperity. This is the revolution India needs.
This revolution needs to have two elements – one which leads to political change, followed by a government that initiates economic change. Political change will not come from replacing one political party with another. We have done that for the past 73 years and failed. What is needed is to elect a Lok Sabha of Independents – people selected through local primaries by unaffiliated Indian voters (who constitute two-thirds of the voters). These non-aligned and non-voters (NANV) have to create a coalition, connect digitally, communicate the ideas to each other and craft the political change. They number 60 crore out of India’s 90 crore voters. Staying undecided till the end or abstaining from voting can no longer be the options. It is in the hands of this ‘silent majority’ that India’s future lies.
Only when the Lok Sabha is freed from the clutches of the political parties can the foundation be laid for economic transformation. The powers of government need to be shrunk and the freedom for individuals and entrepreneurs needs to be enlarged. The anti-prosperity machine must be dismantled. Setting Indians free must be the single point agenda of this new government. I have written about various ideas in the past – the Nayi Disha Manifesto (with Dhan Vapasi at its core) and Mission 10-20-30 are two such essays. A government comprising people focused on change and not continuity in power can complete the revolution.
Tomorrow: Part 17
“Sometimes people hold a core belief that is very strong. When they are presented with evidence that works against that belief, the new evidence cannot be accepted. It would create a feeling that is extremely uncomfortable, called cognitive dissonance. And because it is so important to protect the core belief, they will rationalize, ignore and even deny anything that doesn’t fit in with the core belief.” ― Frantz Fanon
As Indians, we have two clear choices. The first is to accept the reality and get on with our lives. “I cannot change anything. I have my own problems to solve. And let’s face it – life is much better for me than it was for my parents, and I am sure it will be better for my kids than it is for me.” Or give a strong counter punch: “There isn’t anything wrong with India. Who says we are poor? We have a great leader with a 78% approval rating (according to the India Today Mood of the Nation survey) who is solving every problem – Covid, China and the economy. We have full faith in him. Don’t be an anti-national by calling India weak.” The politics of vishwas, as Neelanjan Sircar wrote in a paper referenced by Pratap Bhanu Mehta in an Indian Express op-ed:
Voters prefer to centralise power in a charismatic strong leader and they have faith that whatever the leader does is good. This model is in contrast to the usual models of politics, where leaders are held accountable on performance or because they serve a coalition of interests.
Sircar offers two broad explanations underlying this phenomenon. The faith in the leader is not merely a materially instrumental faith; it represents an underlying shift in the ideological preference for a Hindu nation, an entity that is untied and rises above the messy negotiations with difference. Faith in a leader is deeply facilitated by nationalism: The leader as the simplified embodiment of unity, will and purpose. Behind this phenomenon of producing vishwas is an extraordinary machinery of communication, which literally deploys as many elements in a communicative tool kit as there are feathers in a dancing peacock: From the semiotic command of images to a saturation with messages; from good-old-fashioned hard-working party outreach to literal control of the media.
Three predictions follow from this shift in the underlying model of politics. The first is an immunity to any accountability: You can preside over poor economic performance, suffer a military setback, inflict suffering through failed schemes like demonetisation, and yet the trust does not decline. In fact, it thrives on a certain nonchalance about actual performance. In the face of vishwas, it is impossible to point out that India is in the midst of what historians used to describe as a military-fiscal crisis — both in a fiscal and a military corner. The point about vishwas is that fact, performance and interests are all petty. The second prediction is that this politics requires the continual feeding of ethno-nationalism, moving from one issue or one enemy to the other. And three, it points to the fact that vishwas is not just a political artefact — it has to be continually sustained by a saturation of the mindspace and control of media.
For those in this group, all I can say is, “So be it. I respect your opinion. But I will tell you one thing. The hunger and greed of a politician’s power knows no caste, creed or community. Absolute power corrupts absolutely. We have seen that before in the mid-1970s. Silence and acquiescence are both wrong. I hope one day you will wake up and do the right thing.”
There is a different path.
Tomorrow: Part 16
“Life without liberty is like a body without spirit.” – Kahlil Gibran
We need to be free to choose. This is what I wrote in January 2018: “Free, without force. Free to choose our candidates, empowered mayors, CMs and PM. Free to choose how we live our lives. Free to choose how we spend the money we earn.”
There is one question that comes up time and again when I talk of freedom. “But look at Singapore and China – where do their people have freedom? And their government is deeply embedded in the economy. That is what India also needs. Not less government but more government — with good people.”
Let’s first get this clear. Singapore and China are not democracies. Both have had single-party rule since their inception. In such a situation, those in power can take the long view because they do not have to face elections. (Singapore does have elections every few years, but the outcome has never been in doubt even once. China doesn’t even bother with elections.) In both countries, the power of the leader at the top is absolute. This can be used for good or bad. Singapore was lucky to get Lee Kuan Yew. China’s luck turned after Deng Xiaoping replaced Mao and opened the country to foreign investments. Both countries ensure that the bureaucracy employs some of the smartest people the country has. They think long-term and with the powers they have to ensure execution. Both countries have delivered prosperity to their people.
India is a democracy. Politicians have to face the electorate every few years. The result is that their first instinct after they win is to strategise on how they are going to stay in power by winning the next elections. Any transformative policy which can be remotely a vote-loser is relegated to the background. Populism rules the roost for the most part. So, welfare schemes rise to redistribute wealth from the rich – very popular in a one-person-one-vote electoral system where the poor outnumber the rich many times over.
India’s predicament is multiplied by politicians who have no idea of the principles of prosperity. They are adept at winning elections, but not at governing. So, they rely on their naïve instinct (which is usually wrong when it comes to identifying policies that can create wealth and prosperity) and pliant ‘Yes, Minister’-like bureaucrats who revel in the socialist status quo and avoid any form of risk that reforms could bring. Yes, the occasional good idea does come through but even a broken clock is right twice a day.
The actions of politicians and bureaucrats would not have mattered much had India got a Constitution like the US that put constraints on the powers of the government and ensured freedom for the people. Unfortunately, in India it is just the opposite. Our more-than-100-times-amended-Constitution maximises the powers of those in government. The result is a deadly feedback loop – the bad people get into politics and rise to the top, and create an unholy alliance with other bad people to grab even more power and money, which attracts even more bad people.
Tomorrow: Part 15