By Subir Ghosh
February 22, 2015| 7.00 pm IST
The media has gone to town with the Reserve Bank of India (RBI) governor, Raghuram Rajan's mention of Adolf Hitler and "strong" governments in his speech on 'Democracy, Inclusion, and Prosperity' at the DD Kosambi Ideas Festival held on February 20 in Goa.
What many have been gloating about is that the RBI governor was essentially taking potshots at the Prime Minister with the insinuations. The two paragraphs that have been circulating on social media would certainly seem so, especially if one plucks them out of context.
Rajan's entire speech on liberal market democracy was built on political scientist Francis Fukuyama's works on the emergence of political systems around the world. Rajan talked about Fukuyama's theory of three important pillars for liberal democracies: a strong government, rule of law, and democratic accountability. This came with a word of caution: "I will then go on to argue that he leaves out a fourth pillar, free markets, which are essential to make the liberal democracy prosperous. I will warn that these pillars are weakening in industrial countries because of rising inequality of opportunity, and end with lessons for India."
The RBI governor delved deeper: "Strong government does not mean one that is only militarily powerful or uses its intelligence apparatus to sniff out enemies of the state. Instead, a strong government is also one that provides an effective and fair administration through clean, motivated, and competent administrators who can deliver good governance." He, in fact, underscored Fukuyama's argument about the need for a "strong" government even in a developed country. The economist, essentially, was building the case for a strong government; and not to the contrary.
Rajan invoked Fukuyama to contend, "Strong governments need to be peopled by those who can provide needed public goods – it requires expertise, motivation, and integrity. Realizing the importance of strong government, developing countries constantly request multilateral institutions for help in enhancing their governance capacity."
And it was in this context that Rajan went on to add his two Hitler cents. The reference was there only to buttress his contention about what he himself meant by a "strong" government; it was a clarification. If one reads the subsequent chain of his reasoning, it becomes clear that the RBI governor was not taking digs at his Prime Minister. He was, as a matter of fact, probably hinting at the shape of things to come (which would be endorsed by the Prime Minister himself).
Raghuram Rajan, who has spoken out against crony capitalism a number of times in the past, while elaborating on free enterprise and political freedom in Goa, spoke out against the rich getting richer with their ill-gotten wealth. He emphasised, "In some emerging markets today, for example, property rights of the rich do not enjoy widespread popular support because so many of a country’s fabulously wealthy oligarchs are seen as having acquired their wealth through dubious means. They grew rich because they managed the system, not because they managed their businesses well. When the government goes after rich tycoons, few voices are raised in protest. And, as the rich kowtow to the authorities to protect their wealth, a strong check on official arbitrariness disappears. Government is free to become more autocratic." The case, therefore, for the need for a government to be autocratic when it deems fit.
If that was not all, he went on to enlarge this assertion: "Consider, in contrast, a competitive free-enterprise system with a level playing field for all. Such a system generally tends to permit the most efficient to acquire wealth. The fairness of the competition improves perceptions of legitimacy. Moreover, under conditions of fair competition, the process of creative destruction tends to pull down badly managed inherited wealth, replacing it with new and dynamic wealth. Great inequality, built up over generations, does not become a source of great popular resentment." The RBI governor is not here to remove inequalities, if those (i.e. inequalities) happen by default.
In that particular section of his speech, Rajan averred that "free enterprise and democracy sustain each other," but seemingly contradicted himself when talking about equitable distribution of economic capabilities, "Support for the free enterprise system is eroding, as witnessed by the popularity of books like Thomas Pikkety’s Capital in the 21st Century while the influence of illiberal parties on both the Left and Right who promise to suppress competition, finance, and trade is increasing. The mutual support between free enterprise and democracy is giving way to antagonism."
All this, Rajan said in laying the ground for what he had to portend about India. He rued the lack of well-trained economists, but affirmed that India has strong institutions like judiciary, opposition parties, the free press, and NGOs who can check government excesses. Then came the qualifier: "However, necessary government function is sometimes hard to distinguish from excess." Here, he was hinting at “necessary” government actions. Probably in the days to come.
What the RBI governor was leading to, was this: "So in thinking through reforms, we may want to move from the theoretical ideal of how a system might work in a country with enormous administrative capacity, to how it would work in the actual Indian situation. Let me emphasize, we need ‘checks and balance’, but we should ensure a balance of checks. We cannot have escaped from the License Permit Raj only to end up in the Appellate Raj!"
Rajan does not want appellate bodies; this he made abundantly clear: "If we create a multiple appellate process against government or regulatory action that is slow and undiscriminating, we contain government excess but also risk halting necessary government actions."
Direct references to Adolf Hitler and “strong” governments do make for a loaded, colourful copy; but they also make for a bad story. So bad a story, that it missed the point altogether.