Governance, institution building and economic prosperity

part two In the previous part, we discussed how a society devoid of a moral and ethical code to govern itself will be overrun by robbers and cheaters and the need for building strong institutions for checking their proliferation. When robbers and cheaters are hailed as heroes, following the Gresham’s Law, all good men and women in the society are driven out by bad men and women, thus making it a society inhabited wholly by robbers and cheaters. As a natural corollary, it gives birth to big government and, consequentially, bribery and corruption. It gives an opportunity for people to make easy and unproductive money which economists call ‘rent seeking’. Its danger is that it gives a wrong signal to people. That is, that prosperity can be achieved by robbing from each other and hard work, innovation and self – improvement are unnecessary for creating wealth. In this part, we discuss how such a system will rob the prosperity of the society and lead to stagnation initially, and then, to decay and full destruction at the end. The continuous and sustainable economic prosperity of any society will depend on a number of factors. Governance principles are important First, the governance principles followed by the society should be conducive to the continuous and long term sustainable economic prosperity. It requires the members to accept the right of others; the right to live, the right to hold property, the right to dispose of the property in an exchange of their choice and the right to self – improve. When these rights are guaranteed by an effective enforcement system without discrimination and foul play, each member of the society has the incentive to develop his property, both human and physical because at the end he knows that he can benefit from such developments. If, on the other hand, what is developed by one person is acquired by coercion by the state or by another who has the support of the state, it gives a bad signal to all. In such a society, members will desist from developing themselves since at the end they stand to lose everything they have built. Hence, the most important requirement which the governance principles should underlie for a sustainable system is the motto, ‘live and let live.’ Freedom of Expression and Thought are the pillars of Innovation Second, freedom of expression and freedom of thought are essential requirements of continuous innovation and new discoveries which are the cornerstones of economic prosperity. If members are in fear of losing their occupations or lives because they speak the truth or what they feel as correct, then, they do not have the correct mindset to get into innovations and new discoveries. The advancement of science and knowledge has taken place throughout the history by dissent and not by agreement. All great innovators and creators in the world did so by critically questioning the existing knowledge. Kautilya himself questioned the accepted version of politics and economics at his time and proposed alternatives in The Arthashastra. This means that toleration of opposing views is a must, if a society is desirous of spawning innovations and new discoveries. Law and order ensures fair play Third, the maintenance of law and order and observation of rule of law should be a part and parcel of the legal structure of the society. When law and order are maintained, it prevents people from forcefully taking over the property belonging to others. This applies to the state as well. In order to maintain law and order, the state has been given power to take away the right of a person to live, that is, to impose capital punishment on wrong doers. But, this right has to be exercised by the state by following an accepted moral code and not arbitrarily and unjustly. Kautilya advised on just punishments Kautilya repeatedly admonished in The Arthashastra that punishments awarded must be just. He proclaimed that ‘only the Rule of Law can guarantee security of life and the welfare of the people’. According to him, ‘the maintenance of law and order by the use of punishment is the science of government’. He further said that ‘it is the power of punishment alone which, when exercised impartially irrespective of whether the person punished is king’s son or enemy, that protects this world and the next’. Kautilya said that a king who metes unjust punishments is hated by the people whom he terrorises. About punishing innocent people, Kautilya had a wonderful recommendation: ‘an innocent man who does not deserve to be punished shall not be punished, for the sin of inflicting unjust punishment is visited on the king’. To, free the king from the sin, Kautilya advised the king to pay compensation as high as thirty times the original punishment. He also said that though previous sages had recommended cruel capital punishment, simple death penalty without cruelty shall be exercised if death penalty has to be imposed. It meant that even the man condemned to death has a right to die honourably. Hence, the punishment system to be enforced by a society desirous of attaining sustainable prosperity should be fair, just and free from arbitrariness. Coercion is not the answer  Many governments have used coercion to have private property transferred to the state. Such coercive laws will give only a temporary benefit to the government. This is because when people understand that the fruits of their labour are being robbed by the state without compensation, as pointed out previously, they do not have incentive to develop their enterprises or human skills. Hence, the forced transfer of resources from individuals to the state gives only a very temporary solace and cannot be sustained in the long run.  Hitler’s war economics was short - lived Economic historians have found that, as revealed in war crime trials in Nuremberg, Adolf Hitler had coercively got the resources belonging to the Jews transferred to the Nazi regime. According to historians, Hitler had robbed Jews at four different stages. First the movable property belonging to the Jews such as money, financial assets, clothes, human hair and even the gold teeth in their mouths were confiscated. Second, all the immovable property such as land, buildings, factories etc. was acquired. Third, in somewhat horrible manner, the accumulated calories of the Jews were used by feeding them with food less than the needed daily requirement for a healthy life. Finally, when the Jews died of overwork or ill health, their skins were tanned as leather, body fats were used for manufacturing soap and bones for making artefacts or fertiliser. One may argue that Hitler was a good economist because he followed the principle of zero waste policy, a policy which is advocated by many environmentalists today. But, in reality, Hitler got only a temporary benefit because he could not sustain a continuous flow of work and innovation with dying Jews after one generation. Coercion also affects the long term health of an economy and therefore, the long term economic prosperity as well, because it does not tolerate opposing views. People who are coerced will rise against the rulers, thereby endangering social stability. The social instability is the killer of hard work, innovation and new discoveries which are the essential requirements of long term economic prosperity. It is, therefore, essential to build up a tolerant society as a prerequisite of generating sustainable economic prosperity. ‘Treat Opponents with Honour’ advises Emperor Ashoka. In this regard, it is pertinent to quote Amartya K Sen, the first and only Nobel Laureate in Economics from Asia, Sen in his The Argumentative Indian published in 2005 highlights the value of a tolerant society: Sen says that, ‘it was indeed a Buddhist Emperor of India, Ashoka, who in the third century BCE, not only outlined the need for toleration and the richness of heterodoxy, but also laid down what are perhaps the oldest rules for conducting debates and disputations with the opponents being ‘duly honoured in everyway on all occasions’. Sen’s remark and Emperor Ashoka’s advice are a good eye opener for all of us. (W. A. Wijewardena can be reached on waw1949@gmail.com)