Essay elaborates Friedrich Hayek’s theories on economics, complexity, knowledge problem and just rules of conduct within the context of Indian socio-political order. It also attempts a causal explanation for the corruption of Indian political institutions while drawing a contrasting comparison with the productive role played by markets. The topic is broad and the content is focused on succinctly explaining the underlying mechanisms. Such an approach also reveals Hayek’s powerful explanatory framework structured on spontaneous orders.
Progression of a civilization depends largely on the values embodied in its institutions, these very values tend to shape the emerging individual plans. How this interplay influences the overall institutional evolution is also crucial. Indeed, it’s a bidirectional causal relationship. For example, democratic institutions determine our conduct but in turn we also shape its role through various electoral channels or through political parties etc.
Classical liberal view elaborates a mental framework to interpret this political process, also helps us identify those benign values which tend to foster a prosperous order. Without an explanatory framework it’s impossible to properly interpret a complex phenomenon like society. Such an attempt to define a worldview eventually involves varying degrees of collectivist or individualist thoughts. Here we explore the individualist ideas associated with F. A. Hayek’s literature on economics and jurisprudence.
Private Sphere & Rule of Law
Classical liberalism elaborates a theoretical approach to defining, protecting and enabling individual private sphere through equal enforcement of laws. It emphasizes individual’s autonomy to employ private resources for own purposes. In Adam Smith’s terms, it’s about enabling the freedom to exhibit our “propensity to truck, barter, and exchange”. Legal and political institutions should be, in that sense, a mere facilitator. Their role should be to enable transactions to emerge by eliminating certain forms of uncertainty.
Trade mandates autonomy over material resources, and property rights are in fact the only known mechanism to reliably determine the set of resources an individual can utilize for his planning. Laws are like the rules of a game, never designed to determine the outcomes, but only to influence the employed methods.
F. A. Hayek explicated in ‘The Constitution of Liberty’, unlike a ‘command’ or an ‘order’, law is not meant to direct individual efforts to some larger collective purpose. So, more specific the overall context of the application of a law, more it tends to resemble a command. For example, a legislation introducing affirmative action is actually a command. While a general and equally applicable automobile liability insurance mandate can be termed as a law. In other words, “a specific end, a concrete result to be achieved, can never be a law“.
The reason why it’s called the ‘rule of law’ as opposed to the rule of men is because of the very fact that the law applies equally to all. No one can be above the law. So, legal clarity is immensely crucial, any ambiguity within the law would automatically introduce a scope for discretion. An obscure law can then be subjected to inconsistent interpretations, in such cases we are not being ruled by the law but by the whims of government bureaucrats and judges.
Private property rights and rule of law are the essential instruments for development of markets. They are imperative for the extensive division of labor observed within any modern market economy. Eventually, all the elaborate institutional machinery has to be structured to protect these two integral attributes. In other words, legislation and dispute resolution should enable and protect individual private sphere without enforcing collective plans.
Even a cursory study of various political economies will reveal that those societies which adopted strong property rights prospered. Several reasons, but at the core property rights framework internalizes both negative and positive externalities. It creates the vital profit/loss incentive and a personal sphere of influence for individuals to learn, adapt and employ scarce resources for the ends valuable to their fellows.
Like any other species on this planet, we are also motivated by self-interest. Even those who claim selflessness derive value from their selfless acts. Independent of the institutional structure, our innate survival instincts are geared to adapt. Market system harnesses this self-interest into a productive force. It provides the incentives to direct our time and resources, at a market decided price, towards the needs of our fellows. Prices are constantly being shaped by real market factors related to demand, scarcity, individual preferences etc. Indeed, markets with a price system do resemble a real-time democracy.
Profit incentive and competition compels market firms to adapt and cater to even the most impoverished sections of the society. In India, it’s probably most blatantly evident in areas like telecommunication and consumer electronics. In simple terms, markets exist for us to add value to each to other, it provides a framework to compete and discover novel methods for serve one another.
Hayek succinctly stated, when we move from a relatively small society to an extended market order, our transactions are mostly with unknown individuals. We are actually unaware of most of the entities involved in delivering services and material products right to our doors. Market actually creates an impersonal network by channeling help from the best avenues possible.
When combined with compatible institutional structure of property rights and rule of law, market prices act as a signaling mechanism for coordinating plans of dispersed actors. By following such a communication channel we can add value to even the unknown members of our society. Compared to all the proposed rival orders, only market enables such a unique impersonal price signal.
With the right institutional framework, market competition can act as a powerful discovery process. Bringing about a constant improvement in methods which enables us to support a growing population, and at the same time continue to improve our standards of living. Automobiles, telecommunications and e-commerce are all pretty good illustrations of market competition. As opposed to Indian public transport system, infrastructure and other utilities which are clear disastrous illustrations of price fixing and government enforced monopoly effects.
The goal should be an environment with stable laws, market competition and property rights. Scientific process is about adopting the right methods, it’s not about noble intentions. West did not plan their progress but they did employ institutions compatible with freedom under the law.
Democracy initially emerged within the Anglosphere to protect individual from tyranny. But, in India it’s employed as the means to voluntarily elect what Adam Smith describes as the ‘man of the system’ — “wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government ” . Consequence has been a complete disdain for the individual life and property.
Indian democratic institutions possess numerous commendable qualities; Constitutional checks and balances, independent judiciary, bicameral legislature, federalism, fundamental rights. Almost a Madisonian like structure — “arrange the several offices in such a manner as that each may be a check on the other”. But seems like the elected politicians conveniently decided to assign to themselves a structural role completely outside of this Constitutional order.
Right from the beginning the tendency was to consistently subvert property rights to enforce grand collective plans. The very first amendment to the Constitution itself was about enabling legislations disrespecting fundamental rights — a Constitutional amendment to circumvent the Constitution itself. The full list of amendments reflect nothing short of a complete dismantling of the rule of law. It’s a step by step devolution of a federal constitutional republic into almost an authoritarian parliamentary system.
Every individual possesses subjective preferences and values. Everyone has their own plans and rather unique combination of innate and acquired skills. Executing collective plans mandate that to varying degrees we all give up our individual aspirations and be subjected to the planner.
Such a grand collective planner would never possess the detailed knowledge about the compatibility of his seemingly amazing ideas with the underlying individual preferences. So the choice is whether we allow politicians to control and divert valuable resources to their pet projects or seek individual autonomy to decide our own fate. Within a world of resource constraints, it’s logically impossible to deploy collective plans and still manage to not give up a certain degree of autonomy.
Curiously, for an ancient civilization with a history of trade, Indian democratic experience has exhibited sheer disdain for private property. Certain sociopolitical factors like paternalistic social order, collectivist culture and the general ‘rule of status’ could have contributed to the problem. We might be perceiving the political sphere by employing the value framework used within hierarchical social relationships.
To build a free society we need to take individual responsibility seriously, mere obedience is an incompatible virtue. Demanding individual freedom mandates an intellectual courage to face uncertainty. Indians are able to accomplish this within their respective areas of work. But within the political sphere this value is simply not being emphasized. Somehow along the way we failed to realize that it’s the individual ingenuity expressed through market institutions that make a great civilization, not political cult of personalities.
A Causal Analysis
F.A. Hayek’s famous essay “Why Worst Get on Top” has an explanatory scheme, it attempts to elaborate the underlying causes which lead to the emergence of Hitler. But it’s equally applicable to the pattern of corrupt Indian politicians rising to the top. It’s our own misconceptions regarding the role of the government and the values we seek in our representatives that has led to this coercive administrative state.
To quote Hayek, “It is not who governs but what government is entitled to do that seems to me the essential problem”. Indian electorate is indeed assigning to political offices an incorrect role of mobilizing resources. After giving them the authority we should not complain about their own self-interested behavior, which is to enrich themselves and their friends. In fact, a position of power which gives ample scope to control wealth tend to attract the kind of individuals who possess no qualms utilizing it for their own gains.
Indian democracy has crafted this political value framework in which only the unscrupulous or the absolutely innocuous puppets can thrive. A principled individual will hesitate at coercing others or deciding what is good for them. But because of our incorrect views, we have inadvertently enabled an electoral process mostly geared towards attracting the authoritarian elements of our society.
There is also an intellectual side to this, anyone who thinks through the complexity of a modern social order would realize their own limitations. The lack of comprehensive information, the time constraints with regards to studying and resolving innumerable connected problems are all insurmountable hurdles. A method of personalized problem solving is viable only within small villages or communes where everyone possesses a deep contextual knowledge of circumstances.
Various centrally planned schemes and their prioritizations impact many individuals in a positive or a negative way. A person who really thinks through the implications will realize that we simply do not possess the knowledge to take a purely utilitarian stand on many such issues.
Undoubtedly, compared to political processes which are highly susceptible to corruption, market resource allocation happens through the very impersonal mechanisms of property rights and price signals.
So, as long as we support massive collective schemes, we will continue to elect unscrupulous con artists. According to Hayek, these are the men who “desire to impose upon the world a preconceived rational pattern than to provide opportunity for free growth”.
Rules and Order
Hayek’s literature on classical liberalism emphasizes the critical nature of rules of conduct. It’s eventually rules that act as the interfacing mechanism enabling us to coordinate and cooperate with each other. Even something as simple as the act of greeting someone can be termed as a rule which enables us to communicate respect. In that sense, every advanced culture has their own set of rules which fosters a peaceful coexistence.
The nature of the emerging social order depends on the rules followed on the ground. Which could be something different from the rules dictated by some distant authority. We can observe from the Indian traffic pattern that the rules followed are not the ones decided by the bureaucrats. The traffic rules in use are the ones which enable the individual to navigate poor infrastructure. For example, the excessive use of horn is a mechanism to deal with poor traffic signs.
We can probably state, the norm is to disregard all the “legal” traffic rules. But in reality, certain other rudimentary rules are followed, it’s just that they are less explicit, may be sometimes dangerous too. But they are anyway perceived as useful by the individuals who are navigating the reality of local constraints.
Important point is, rules are followed when it adds value. We could interpret rules as instruments guiding various divergent private plans. According to Hayek, rules should enable a certain coordination of contextual expectations. To draw on the previous illustration, if you greet someone, there is a good possibility that they might return the respect — cause and effect coordination.
When legally enforced rules add little or no value, then they are perceived as meaningless constraints. We can interpret certain forms of administrative corruption as a mechanism to get around such ridiculous legislations. Quite like how the emergence of a black market resolves government created scarcities, corruption is an emergent norm to circumvent such institutional problems.
Eventually, such a disrespect for bad rules can gradually turn into a complete disrespect for all the rules. Lawlessness is the consequence of incorrect legal order. Essentially, in India, we had employed poor economic theories to overwhelm an otherwise competent set of political and legal institutions. In fact, in pursuit of ‘constructing’ prosperity, all the governmental branches have now been ironically transformed into exploitative machines.
General Market Pattern
Independent of the institutional structure, innate human instincts are geared to adapt. It’s just that the protection of private decision making sphere through the rule of law encourages an overall beneficial pattern of adaptations. Equal rules and freedom to associate enables an arrangement where only positive sum exchanges emerge. We are voluntarily forming various complementary groups which enhances our own chances of survival.
In Hayek’s own terms, markets are an n-dimensional network where every individual is simultaneously playing specific roles within numerous institutions and subsystems. For example, at work we are part of a specific consciously arranged group, but visiting our regular doctor places us within another dispersed group of other patients who frequents the same clinic. Here also we are essentially forming a complex complementary whole where every individual is better off being part of the group than he otherwise would be.
Shared rules of conduct and market price signals enable formation and contingent adaptation of numerous such dependent connected groups. Individualism is in fact a view which enables the formation of purely voluntary collectives. Markets are simply more efficient because its structural formations are about one thing – adding value. Here, without any central guidance we constantly self-organize into various groups, eventually enabling a much richer life.