Monday, December 30, 2013

Can Lokpal Bill and AAP Remove Corruption?

The Indian government passed the popular anti-corruption Lokpal bill recently, and the anti-corruption crusader Arvind Kejriwal and his Aam Aadmi Party is now in power in New Delhi. Many people are thinking that these two developments in the Indian polity will now help remove corruption. But, is it so? Can Kejriwal and his Aam Aadmi Party fulfill its election promises? Can they fulfill everyone's demands? I answer these questions in my latest economic report below.

Saturday, December 21, 2013

RBI is Toying with Peoples' Lives

Last Wednesday the Indian central bank RBI, according to media language, surprised the markets by keeping its policy rates unchanged despite growing inflationary pressure in the Indian economy. Both WPI (Wholesale Price Index) and CPI (Consumer Price Index) are rising again; RBI's tone was also mostly anti-inflationary before the policy announcement, but they still kept the rates unchanged.

As I am saying since quite long time, to see the impact of RBI's policies on the economy, we should not focus on what RBI is saying, but what they are actually doing; We must focus on their actions. On one side when they are talking about taking a tough stance against inflation, they actually continue to inflate! Raghuram Rajan is trying to manage the inflation expectations while at the same time creating more inflation. This happens because his mainstream economic theory defines inflation as a persistent increase in the general price level. Rise in price is not inflation, but an effect of inflation, as I have said many times in the past. Increase in the supply of money and credit is inflation. By keeping the rates on hold, Rajan continues to inflate the money supply. And this inflation continues to erode the purchasing power of rupee, which gets reflected into the higher prices of various economic goods like food or energy items.

His post policy conference talk with the media also shows how he is toying with citizens' lives. He is trying to play god by trying to "calibrate" the monetary policy to micromanage the inflation rate. Here's what he said:
Thank you. Let me start with a short statement. Good Morning. Recent readings suggest that headline inflation, both retail and wholesale have increased, mainly but not exclusively on account of food prices. While core CPI and core Wholesale Price Index (WPI), that is, inflation excluding food and fuel have been stable, despite a steady and necessary increase in government administered prices towards market levels, the high level of core CPI inflation leaves no room for complacency. There is, however, reason to wait before determining the course of monetary policy. There are indications that vegetable prices may be turning down sharply, although intermediaries could impede the full pass-through into lower retail inflation. Our own current readings from the metros suggest a significant fall in vegetable prices, both at the wholesale and retail level which gives us reason to make this statement. In addition, the disinflationary impact of recent exchange rate stability should play out into prices. Finally, the negative output gap, including the recent observed slowdown in services growth, as well as the lagged effects of effective monetary tightening since July, should help contain inflation.

This policy decision, which is to stay on hold, is a close one. Current inflation is too high and I repeat, is too high. However, there are wide bands of uncertainties surrounding the short term path of inflation from its high current levels. Given the weak state of the economy, the inadvisability of overly reactive policy action, as well as the long lags with which monetary policy works, there is merit to wait for more data so that uncertainty can be reduced before we act.

There are obvious risks to waiting for more data including the possibility that tapering of quantitative easing by the US Fed may disrupt external markets and that the Reserve Bank may be perceived to be soft on inflation. Let me assure you that the Reserve Bank will be vigilant. Even though the Reserve Bank has maintained status quo today, it can help guide market expectations through a clearer description of its policy reaction function which is: if the expected softening of food inflation does not materialise and translate into a significant reduction in headline inflation in the next round of data releases, or if inflation excluding food and fuel does not fall, note that there is an “or” here, which means both conditions have to be met, the Reserve Bank will act including on off policy dates if warranted, so that inflation expectations stabilise and an environment conducive to sustainable growth takes hold. The Reserve Bank’s policy action on those dates will be appropriately calibrated.
This is all impossible. One man sitting in RBI office can never really determine the market rate of interest, inflation rate, rupee exchange rate or any other such market price. Price determination can take place only in the free market. Only the free market forces of demand and supply can truly determine any exchange ratio i.e., price. Rajan thinks that the Indian economy is some kind of a mechanical machine, which he can easily "fine tune"!  He doesn't understand that an economy is no machine, and his fine tuning is hurting billions of people around the country. His micromanagement of the economy and calibration of monetary policy is creating inflation, boom-bust cycles, unemployment, income inequality etc., etc., economic, social and political problems. The more he will try to calibrate this machine, the more he will screw peoples' lives. Central planning social engineering will always result into disaster. RBI is a central planning monetary authority, and it is wrecking our economy.

Raghuram Rajan and other RBI governors can talk and act so irresponsibly like this because they are not going to be punished for their crime of destroying millions of peoples' lives via their inflationary monetary policy. They will face no justice; they will never be convicted; they will never face any jail time. In fact, after leaving their governor positions, they will be given highest accolades by the state officials; they will get lucrative jobs from statist institutions; they will be given honorary degrees from universities; they will become future Bharat Ratnas and what not. This is all disgusting. If these governors are held accountable for their actions, then, I am sure, none of them will dare to join RBI. But, I know no such thing is going to happen. Ultimately it is the public opinion that will decide the fate of RBI. Ultimately it is the free market forces which will end the money monopoly of central banks around the world. When people will understand the true evil nature of central banks, they will demand its demise. As long as people are unaware of central banking institution's true nature, we will have to suffer at the hands of social engineers like Raghuram Rajan.    

Monday, December 9, 2013

Indian Assembly Election Analysis

So, the so-called semi-final round of the 2014 Lok Sabha election finally ended yesterday. The results are out for all five state assembly elections. What do these results indicate? Following is my brief analysis.

First, the defeat of Congress party in Rajashthan and Delhi constituencies shows how frustrated voters were against the incumbent rulers in these states. The ruling UPA coalition, lead by the Congress party, is involved into myriad of political corruption scandals since last few years, which possibly have angered voters against its rule in these states. The sign of this anger was visible in Delhi election where anti-corruption crusader Arvind Kejriwal's AAP (Aam Aadmi Party) won total 28 seats in its debut itself. The rise of AAP is now posing a big political threat to both Congress and BJP. What was interesting in Delhi election is, that there was a three way fight between Congress, BJP and AAP, and most of the seats lost by Congress were won by AAP, and not by BJP. This is important because it hints at the fact that the hyped Modi Magic didn't really work. If Modi magic was working, then, BJP should've snatched all seats from Congress. Instead people voted for AAP, and neither for Congress nor for BJP. It seems, people have started realizing that both BJP and Congress are corrupt. Frustrated people were looking for an alternative, and, so far, they have found that alternative, at least in Delhi, in AAP. Another indirect evidence of failure of hyped Modi magic is seen in Chhattishgarh election where the ruling BJP government barely held onto power against Congress, which won more seats in this election than in last. And today Congress won Mizoram elections convincingly.

Looking at all these drama, it would've been interesting if AAP contested in Rajashthan, M.P., Chhattishgarh and all other state assembly elections too. The hyped Modi magic would've been truly tested in that case. But as I said above, these election results are, as usual, showing that people are more concerned about their local issues. Local factors mostly play a big role in India where the country is so diverse. The myth of one nation called India is perpetrated by the politicians themselves. People are busy with their own life instead of worrying for the false cause of Indian nation. If they don't get cheap onions in their locality, then, they are going to throw the rulers out like in Delhi.

And re AAP, the hope which people are having from these so-called common men is going to result into disillusionment and disappointment in the end because it is easy to promise to remove political corruption, but it is not that easy to actually do it! Arvind Kejriwal is already worrying about making mistakes; he is already fearing from the responsibility which people are putting on his shoulders. To remove political corruption, AAP will have to get into power and start dismantling one bureaucratic department after another. Kejriwal will have to start shrinking the government. Can he do that? I think not. His election manifesto said no such things. In fact, like BJP and Congress, AAP was also promising 'cheap electricity' and 'free water' to everyone! This policy is not at all different from BJP and Congress. Without a sound understanding of the laws of economics (and other natural laws), it is impossible to do good for this country. AAP is equally clueless about these laws. People voted for them because they were looking for some alternative. The thought that election and voting give true choice to people is an illusion. Hapless people are forced to vote. They don't have any other option of changing their ill fate; they can only vote after every few years to try and alter their bad condition. There will be a true choice when people will be allowed to peacefully secede from the Indian State. Election is just an excuse and ritual of democratic religion to keep people under the yoke of government rule.

In the end, in all these elections the final result is certain: Politicians (no matter from which party) will win, and people will lose, as usual!!!         

Monday, November 25, 2013

The Real Athenian Democracy

Democracy is our present world's new political religion. India supposedly is world's largest democracy. We are being bombarded everyday by politicians, media pundits, academicians and other intellectuals about the virtues of democracy. It is seen as the highest form of political system; a goal which every nation state must strive for and achieve to safeguard happiness of its citizens. Democracy is a God. It is given such commanding heights that nation states like USA are bombing and destroying other countries - e.g., Afghanistan, Iraq, Libya, Syria, Iran etc. - for imposing democracy on them from outside (see this)!

Democracy is a political system having its roots in 5th century BC Greece, especially the city-state of Athens. Here is Wikipedia on the origins of democracy:
The term originates from the Greek δημοκρατία (dēmokratía) "rule of the people", which was coined from δῆμος (dêmos) "people" and κράτος (kratos) "power" or "rule" in the 5th century BCE to denote the political systems then existing in Greek city-states, notably Athens; the term is an antonym to ἀριστοκρατία (aristokratia) "rule of an elite". (footnotes removed)  
So, what was this system of democracy as originally practiced in the city-state of Athens? Are today's democracies similar to this original system of Athens? How today's democracies differ from the Athenian democracy? In the following paragraphs I give brief answers of these very important questions.

Before I begin, I want to make one thing clear that I am no way in love with democracy or the state. The following discussion only compares today's democracies with the original Athenian democracy. Notwithstanding all the following discussion of various forms of democratic states, I don't support the formation of any state or the kind of democracies that we are having today. I firmly believe in the market democracy where consumers directly vote with their money for different sellers' products. The best political organization is an Anarcho-Capitalist Libertarian society.

I am right now reading George H. Sabine's A History of Political Theory where he discusses the Athenian democracy in the beginning chapters. Reading of these chapters will immediately make one thing clear, which Sabine also points out, that today's democracies and democratic states are nowhere near or original in form compared with the democracies of Greek city-states like Athens. These differences are all very important to understand what's wrong with today's so-called democracies. The first major difference that Sabine discusses is about the size - both in terms of area and population - of democracies in Greek city-states and today's states.
As compared with modern states the ancient city-state was exceedingly small both in area and in population. Thus the whole territory of Attica was only a little more than two-thirds the area of Rhode island, and in population Athens was comparable with such a city as Denver or Rochester. The numbers are exceedingly uncertain but a figure somewhat in excess of three hundred thousand would be approximately correct. Such an arrangement of a small territory dominated by a single city was typical of the city-state. (p. 19)
Compared to these extremely small sized city-state Athenian democracy, India's so-called largest democracy of 120 crore people is a joke! The size of democratic state is important for many reasons. First, in a small place like a city democracy, people can keep more effective control over the elected administrators. Elected magistrates will also be more representative of the population e.g., in India's democracy there are total 545 MPs representing more than 120 crore people i.e., according to latest population figures, 1 politician (legislator) representing 23,30,774 people!  Second, as Hans Hermann Hoppe explained, a more decentralized polity is good for preserving citizens' liberty.
Smallness contributes to moderation, however. A small government has many close competitors, and if it taxes and regulates its own subjects visibly more than its competitors, it is bound to suffer from the emigration of labor and capital and a corresponding loss of future tax revenue. Consider a single household, or a village, as an independent territory, for instance. Could a father do to his son, or a mayor to his village, what the government of the Soviet Union did to its subjects (i.e., deny them any right to private capital ownership) or what governments all across Western Europe and the U.S. do to their citizens (i.e., expropriate up to 50 percent of their productive output)? Obviously not. There would either be an immediate revolt and the government would be overthrown, or emigration to another nearby household or village would ensue.
 Contrary to orthodoxy, then, precisely the fact that Europe possessed a highly decentralized power structure composed of countless independent political units explains the origin of capitalism - the expansion of market participation and of economic growth - in the Western world.  It is not by accident that capitalism first flourished under conditions of extreme political decentralization: in the northern Italian  city states, in southern Germany, and in the secessionist Low Countries (Netherlands). (Democracy: The God That Failed, pp. 110-11, footnotes removed)
Compared to today's giant centralized Indian state, imagine the Indian continent filled with many small city-states like Surat, Mumbai, Chennai, Hyderabad, Bangalore, Calcutta, New Delhi etc., etc. Just for the sake of argument if we assume of having a democratic state as our political order, then, this world of many decentralized competing city-states will be a much better place to live in for the Indians compared to today's monolith Indian state ruled from New Delhi by handful of political oligarchs. Today billions of Indians don't have any choices of escaping the depredations of the Indian state. 

Another way in which the Athenian democracy differed from today's democracies in a big way was its political institutions. Sabine discusses these institutions in some detail.
The institutions by which his body of citizen-members undertook to transact its political business can be illustrated by taking Athens as the best-known type of the democratic constitution. The whole body of male citizens formed the Assembly or Ecclesia, a town-meeting which every Athenian was entitled to attend after he had reached the age of twenty years...

The interesting thing about Athenian government is therefore not the Assembly of the whole people but the political means which had been designed to make the magistrates and officials responsible to the citizen-body and answerable to its control. The devise by which this was effected was a species of representation, though it differed in important ways from modern ideas of representation. What was aimed at was the selection of a body sufficiently large to form a sort of cross-section or sample of the whole body of citizens, which was permitted in a given case or for a short term to act in the name of the people. The terms were short; there was usually a provision against re-election: and thus the way was open for other citizens to have a turn at the management of public affairs. (p. 22, emphasize mine)
As we can see above, the important mechanism to control the civil servants (today's politicians, bureaucrats etc.) was keeping their term of service short and a provision against re-election. This is crucial because today's democracies don't have any of these provisions. In fact, today's politicians and bureaucrats are professional careerists. Politicians' actions are dictated by only one goal: re-election.

They also had two other political institutions: The two bodies which formed the keys to popular control of government in Athens were the Council of Five Hundred and the courts with heir large popular juries. Various demes (wards or parishes or townships) elected and selected the members of the Council of Five Hundred. Their method of election was very different from today's elections:
The demes elected candidates, roughly in proportion to their size, and the actual holders of office were chosen by lot from the panel thus formed by election. To the Greek understanding this mode of filling offices by lot was the distinctively democratic form of rule, since it equalized everyone's chances to hold office. (p. 23)
Imagine today's politicians and bureaucrats being chosen by lot!!!

The courts of Athens were important in controlling both magistrates and the law itself. Sabine explains this fact:
It was through the courts, however, that popular control both of magistrates and of the law itself was consummated. The Athenian courts were undoubtedly the keystone of the whole democratic system. They occupied a position not comparable to that held by the courts in any modern government. Their duty, like that of any other court, was of course to render judicial decisions in particular cases either civil or criminal; but in addition they had powers vastly beyond this, which to modern ideas were clearly of an executive or legislative rather than of a judicial nature. (p. 24)
In three main ways the courts controlled the magistrates:
In the first place, there was a power of examination before a candidate could take office. An action might be brought on the ground that a given candidate was not a fit person to hold office and the court could disqualify him. This process made the choice of magistrates by lot less a matter of chance than it might at first appear to be. In the second place, an official could be made subject at the conclusion of his term of office to a review of all the acts performed by him, and this review also took place before a court. Finally, there was a special auditing of accounts and a review of the handling of public money for every magistrate at the end of his term. The Athenian magistrate, ineligible as he was to reelection and subject to examination before and after his term by a court composed five hundred or more of his fellow citizens chosen by lot, had little independence of action...

The control of the courts by no means stopped with magistrates. They had a control over the law itself which might give them real legislative power and raise them to a position in particular cases coordinate with the Assembly itself. For the courts could try not only a man but a law. Thus a decision of the Council or of the Assembly might be attacked by a peculiar form of writ alleging that it was contrary to the constitution. Any citizen could bring such a complaint and the operation of the act in question was then suspended until it was acted upon by a court. The offending law was tried exactly as if it were a person and an adverse decision by the court quashed it. (p. 25-6)
Today's state kangaroo courts don't have any similarities with these original Athenian courts. Today's judiciary system works merely as a rubber stamp for the government.

As we have seen above, compared to the original democracies of the Greek city-states, today's democracies are pure farce. Even those people who worship democracy should understand that we don't have any democracy in India. We are better off doing away with these democracies and establishing a free society instead. 

Saturday, November 16, 2013

The Decline of the State

In my last post, we saw how the state arose during the middle of the seventeenth century in Western Europe by conquering its rival institutions like Church, Nobility, Empires and Independent City-States. After rising to power, beginning in the nineteenth century, it consolidated its position and became a God like creature- an end in itself - by co-opting the belligerent nationalism movement. From Western Europe, it then spread to other parts of the world via imperialist policies of these Western Powers. Once set to rule without any kinds of constrains all over the world, it unleashed its wrath on humanity in the form of World War I and II  - and countless other mini wars - in the twentieth century killing millions of innocent people. Twentieth century saw the apogee of state power. In this article I will discuss Martin Van Creveld's analysis of state's demise beginning in 1970s, which is still on-going.

Creveld discusses five major factors as a sign of waning power of the state viz.,
  1. The decline of major wars after two World Wars,
  2. The decline of the welfare state,
  3. The improvement of technology, which is defying state powers,
  4. Take over by other rival competing organizations of various state functions; and
  5. The loss of faith of people in the state
We will discuss these factors briefly below.

The Decline of Major Wars
Martin attributes the waning of major wars after World War II to a single important factor: The waning of major inter-state wars, which during the closing years of the century is still under way, was brought about primarily by the introduction of nuclear weapons. He further explains why nuclear weapons have almost made it certain that never again these major state powers will go to war against each other like they did in the twentieth century:
From the beginning of the history, political organizations going to war against each other could hope to preserve themselves by defeating the enemy and gaining a victory; but now, assuming only that the vanquished side will retain a handful of weapons ready for use, the link between victory and self-preservation has been cut. On the contrary, at least the possibility has to be taken into account that the greater the triumph gained over an opponent who was in possession of nuclear weapons, the greater also the danger to the survival of the victor. A belligerent faced with the imminent prospect of losing everything - as, for example, happened first to France and Russia and then to Germany and Japan during World War II - was all the more likely to react by pressing the nuclear button, or, indeed, by falling on it as his chain of command collapsed and he lost control. (footnotes removed, pp. 337-38)
This very well explains why the Israeli and American governments are hell bent of stopping Iran from getting a nuclear weapon. As the case of North Korea shows, once a weaker nation state acquires nuclear weapons, it is almost impossible for the super powers to attack it. Also, the cases of Saddam Hussein and Muammar Qaddafi show what happens when a state dismantles its nuclear program! The stand-off between India and Pakistan or India and China also exhibits this phenomenon nicely. India and China can issue threats to each other or their soldiers can cross borders here and there, but they will never make a mistake of declaring an all-out war on each other. Nuclear weapons have changed the whole scenario of wars. It works as a deterrent and not as an offensive weapon.

Now, the great American journalist Randolph Bourne said, the war is the health of the state, and when these total wars are on decline after 1945, the state is also losing its power slowly. Martin Creveld explains this brilliantly:
As we saw, the man who really "invented" the state was Thomas Hobbes. From his time to the present, one of its most important functions - as of all previous forms of political organizations - had been to wage war against others of its kind. Had it not been for the need to wage war, then, almost certainly the centralization of power in the hands of the great monarchs would have been much harder to bring about. Had it not been for the need to wage war, then the development of bureaucracy, taxation, even welfare services such as education, health, etc. would probably have been much slower. As the record shows, in one way or another all of them were originally bound up with the desire to make people more willing to fight on behalf of their respective states...

No less important than the massive contribution that war made to the state's structure and organization was its function as an emotionally unifying factor. Famous as they were, the writings of Rousseau, Herder, Fichte, Hegel and the like were read by only a relative handful. It was only when the French state, after the Revolution, instituted the levée en masse - in which respect it was later followed by other states - that the Great Transformation took place and nationalism, fostered by every means at the authorities' disposal, was turned into the dominant ideology of the nineteenth century...It does, however, mean that states can develop a strong appeal to the emotions only so long as they prepare for, and wage, war. If, for any reason, they should cease to do so, then there will be no point in people remaining loyal to them any more than, for example, to General Motors or IBM, which is tantamount to saying that much of their raison d'être will have been lost. (emphasize mine, pp. 336-37).
The Decline of the Welfare State
Once the state's ability to wage major inter-state wars diminished due to the introduction of nuclear weapons, it turned increasingly inwards for winning public opinion for its continuing existence. The warfare state now became the welfare state.
Making use of tools such as statistics, taxes, the police, prison, compulsory education, and welfare, the state had been extending its power over civil society for centuries, imposing its own law, eradicating or at least greatly weakening lesser institutions in which people used to spend their lives, and building itself up until it towered over civil society. From about 1840 on socialist ideas, translated into practice, had worked in the same direction and helped bring about change; then the end of World War II, far from bringing about a period of relaxation, caused it to redouble its efforts.  (p. 354)
The welfare state which picked up speed all over the world after World War II is, after 1970 onward, in decline because, as Margarete Thatcher said, it ran out of other peoples' money! Welfare state created many bureaucracies to run its welfare programs, and as it always happens, these bureaucracies were highly inefficient. It takes huge amounts of tax payers' money to run these bureaucracies, and such boondoggle cannot go on for long for sure. Parasitism will end the day parasites become larger than their hosts, and that's what happened with the welfare state over a period of time. Martin Creveld explains:
The other factor that drove the welfare state to the breaking point was its own success. Whatever their precise form, the various programs had been designed to assist the weak population groups such as the elderly, the sick, and, later, single mothers; however, it soon turned out that the greater the benefits offered, the larger the number of those entitled. (pp. 362-63)
As these states went bankrupt running these welfare programs, they, instead of facing the reality and cutting back on their expenditures, resorted to inflation i.e., money printing to continue running these programs. The result of these inflationary policies was, as expected, further deterioration of their economies. This process is still going on in front of our very eyes today. Most Western World states have piled up huge amounts of debt, which they are unable to repay. Government central bankers around the world are inflating their currencies like crazy to pay for these debt in debased currencies. The end result of these policies will be total ruin and the final demise of these nation states in future. Unfortunately, when these various states will collapse, those people who depend on them for their livelihood will be in a big trouble. The writing is on the wall for these people. They must try and find alternative means of generating their livelihood or their future will be bleak. Alternatively, as Creveld also discusses, once these states will fall, many new opportunities will open up for honest, productive and responsible individuals. Those who know how to earn their bread in the private market will benefit from this collapse.

New Technologies are Defying the State
Historically, states have used technology to control its population. Here is Creveld again:
...the rise of the state is inseparable from that of modern technology. Print, roads, railroads, telecommunications, and typewriters - to say nothing of weapons and weapons systems - were among the most important means that enabled the state to impose its power over every square mile of territory and every individual in the population. Separately and in combination, they made possible the establishment and operations of the armed forces, the collection of revenue, in amounts, at speeds, and over distances that had previously been undreamed of. As it happened, the first use to which the early mechanical computers were put in the 1890s was to tabulate and collate the results of the US census. To look at it in another way, it is no accident that modern technology originated in Western Europe and that it has reached its highest development primarily in those parts of the world where states are strong and stable. (pp. 377-78)
The problem for the state began because many of these technologies - e.g., telegraph, telephone, railway trains, aviation, internet etc. - transcended state borders because of their very nature . These technologies, for its efficient use, required vast networks which goes beyond state borders. These technologies also required central coordination which again defied the powers of individual nation states e.g, the Indian government alone can't decide internet protocols; it has to abide by the international norms! Various states faced a problem of abiding by these international procedures, which are designed by international organizations, or face isolation and decay like North Korea. Today we are seeing how the spread of internet is giving headaches to various nation states. Most governments are desperately trying to control the internet; they are looking for the "internet kill switch". These technologies have helped people around the world to get connected and get information and analysis without any kind of state censor. This has exposed the criminal nature of the state.

The Failure of the Police State
In its efforts of providing all kinds of welfare services to its citizens, the state forgot to fulfill its main mission of providing protection to the life, liberty and property of its citizens. Thomas Hobbes' Leviathan was born to provide internal order by giving protection to its citizens from internal and external threat. But the state is failing miserably in fulfilling its police state function as we are witnessing everyday in present time. In stead of providing protection, it is one of the greatest aggressor against the life, liberty and property of individual citizens. State police is harassing people like never before (e.g., see here, here). State armies world over are defeated by rag-tag guerrilla fighters.
From Afghanistan (where Soviet army was broken after eight years of fighting) through Cambodia (where the Vietnamese were forced to rereat) and Sri Lanka (which the Indian army failed to reduce to order) to Namibia (granted its independence by South Africa after a long and bitter struggle) to Eritrea (which won its independence against everything that the Ethiopians, supported by the USSR, could do) to Somalia (evacuated by most UN forces after their failure to deal with the local warlords), the story is always the same. Each time modern (more or less), heavily armed, regular, state-owned forces tried their hand at the so-called counterinsurgency game, and each time they were defeated. (p. 398)
We are seeing in India the internal chaos in the form of terrorist attacks (which state police and other intelligence agencies regularly fail to stop), many armed secessionist movement in Kashmir, Assam (ULFA), Jharkhand, Andhra Pradesh, West Bengal, Maharashtra, Chhattishgarh, Orissa (Maoist Naxal movement) etc. Indian state's inability to control and stop these movements shows that the forceful unification of India's diverse population after independence won't remain in place for long. The Indian state will collapse in future, and for good.

And as the state is failing in providing internal security and order, many private corporations are taking over this job of producing security.
Individuals, neighborhoods, and corporations have tried to protect themselves against terrorism and crime by hiring private guards, erecting security fences, installing alarm systems and close-circuit televisions, demanding proofs of identity when entering buildings and installations (whether legally or not, the responsible personnel often insist on retaining the documents in question until the visitor leaves), requiring badges to be worn, and much more.

While not all countries are affected to the same extent, so far those measures seem to have done little to eliminate the problem. What they have done is to turn private security into a growth industry par excellence worldwide...

Against the background of evidence that public faith in the police is declining, the task of fighting criminals may revert bank to the "thiefcatchers" in whose hands, in most countries, it had been until the time the French Revolution and beyond. (footnotes removed, pp. 403-05)
The Loss of Faith of People in the State
We are witnessing, day by day, that people over the world are losing their faith in the state officials like politicians and bureaucrats (see here and here). In India also the spate of corruption scandals has resulted into loss of faith of people in "democracy" [sic]. Many are looking for alternatives in the form of some strong authoritarian leader or even a military rule! Here is Martin Creveld explaining this phenomenon:
In fact, the opposite is the case. In study after study produced from the 1960s on, state bureaucracies have been presented as an endlessly demanding (the bureaucratic solution to any problem is more bureaucracy), self-serving, prone to lie in order to cover the blunders that they commit, arbitrary, capricious, impersonal, petty, inefficient, resistant to change, and heartless..."Red tape" has come to stand for anything that is evil, and one of the worst names that any person can be called is "bureaucrat". (footnotes removed, p. 408)
All these factors point in one and one direction only: the state is losing its power and control over the lives of people slowly. Martin von Creveld provides the final verdict on the fate of the once omnipotent state:
Whatever the precise processes, almost everywhere they have been accompanied by a declining willingness of states to take responsibility for their economies; provide social benefits; educate the young; and even perform the elementary function of protecting their citizens against terrorism and crime, a task which at best is being shared with other organizations and at worst simply let go. At the close of the second millennium, and in a growing number of places from Western and Eastern Europe all the way to the developing world, the state is not so much served and admired as endured and tolerated. The days when, as used to be the case during the era of total war in particular, it could set itself up as a god on earth are clearly over. (footnotes removed, p. 414)

Sunday, November 10, 2013

The Rise of the State

Many people with whom I talk think that the political system of the centralized State is with us since time immemorial; that this system is going to be with us forever, and we can't do anything about it. They held such false notions because they haven't looked into the human history, especially the history of the state. If they studied the political history, then, they would know that the state is not with us since time immemorial. In fact, the state is with us only since last 500 years or so! Knowing its history also tells us, that it is not going to be with us forever too. Things have always changed, and this time won't be any different. 

I am reading Martin van Creveld's important book, The Rise and Decline of the State where he discusses the past, present and future of the state. In particular, he addresses the following questions: How the state arose in the middle of the seventeenth century? How it consolidated power? How it achieved its apotheosis and went berserk? and How it is in decline in present time? In this article I will briefly review Martin's discussion of the rise and the consolidation of power by the state.
The Rise of the State 
Before tackling the history of the rise of the State, it is important for us to define what State actually is. Martin defines the State as following: 
The state, then, is an abstract entity which can be neither seen, nor heard, nor touched. This entity is not identical with either the rulers or the ruled; either President Clinton, nor citizen Smith, nor even an assembly of all the citizens acting in common can claim that they are the state. On the other hand, it includes them both and claims to stand over them both.
This is as much to say that the state, being separate from both its members and its rulers, is corporation, just as universities, trade unions, and churches inter alia are. Much like any corporation, it too has directors, employees, and shareholders. Above all,  it is a corporation in the sense that it possesses a legal persona of its own, which means that it has rights and duties and may engage in various activities as if it were a real, flesh-and-blood, living individual,. The points where the state differs from other corporations are, first, the fact that it authorizes them all but is itself authorized (recognized) solely by the others of its kind; secondly, that certain functions (known collectively as the attributes of sovereignty) are reserved for it alone; and, thirdly, that it exercises those functions over a certain territory inside which its jurisdiction is both exclusive and all embracing.” (p. 1)
It is important to differentiate between government and the state because both are not same. There can be – and were – governments without any kind of centralized all powerful states of today’s time. We loosely use both terms interchangeably today, but in a strict technical sense they both are very different concepts. Even stateless societies are governed by its own people i.e., it is self governed. We can’t say that such societies are not being governed. People can self govern themselves or can be governed and ruled by the centralized state.  
Now, before the State arose from the absolutist monarchies in the middle of the seventeenth century, there were many different political societies in place like tribes without rulers (the so-called stateless societies), tribes with chiefs (chiefdoms), independent city-states, empires etc. In some societies, mainly in Western Europe, the state arose slowly defeating all these preceding societies. The Monarchs ruling the Western European countries defeated all other competing institutions like Church, nobility, empires and independent city-states - in between AD 1300 to 1648 - to build their absolutist monarchies. Once these absolutist monarchies were in place, the circumstances were ripe for the state to take over the control of the society from the hands of these monarchs. Martin sums up this whole process:
other things being equal, the more absolute any monarch the greater his dependence on impersonal bureaucratic, military, and legal mechanisms to transmit his will and impose it on society at large. In the end, those mechanisms showed themselves capable of functioning without him and were even destined to take power away from him. (p. 125)
Once these absolutist monarchs came in power, as Martin above said, they faced a problem of ruling and administering their subjects from the center. Because they didn't share their power with any other competing institutions, it was necessary for them to centrally administer their territories. No monarch can alone rule over its subject citizens for sure. For this reason they started forming different bureaus, which gave rise to dreaded bureaucracies with their dangerous careerist professional bureaucrats. Over a period of time, as these bureaucracies became institutionalize, these bureaucrats became so powerful and organized that they freed themselves of the control of their master monarchs and instead started ruling citizens in the name of the impersonal State. Here's Martin again:
In the long run, this kind of bureaucratic expansion itself made it necessary for officials to operate according to fixed rules. The latter governed entry into the service, working hours, division of labor, career management, and the modus operandi in general. Party in order to break the control of the local nobility over appointments, partly under the influence of the chinoiserie that was fashionable at the time, Frederick II in, 1770 instituted a system of entrance examinations. His example was soon followed by Bavaria, which during he third quarter of the eighteenth century developed one of the world's most advanced administration. In 1771 it was to became the first modern country to take a nationwide census, albeit the work was done in a rather desultory way and took ten years to complete. Thus officials begot paperwork, and paperwork begot officials. 

The purpose of the various measures was to ensure uniformity, regularity, and reasonable standard of competence, and in this they were generally successful. On the other hand, every step taken toward professionalism also brought with it a reinforced esprit de corps. Already the introduction of entrance examinations meant that monarchs were no longer free to decide whom to take into their service; it was found that the more centralized any government the more indispensable the officials who ran it on the monarch's behalf. This in turn translated into an ability to insist on their rights and enforce them even against his will, if necessary. Among the most important such rights were freedom from arbitrary dismissal, acceptable pay, a regular promotion ladder based, for the most part, on seniority, old-age pensions, and a certain dignity which they shared with the king...

By this time officials, who for centuries past had been the king's men, were beginning to think of themselves as servants of an impersonal state...However, the more powerful and the more centralized the bureaucracy rulers needed in order to control their states, the more it tended to take that control out of the rulers' hands and into its own. (pp. 136-142)
Because these bureaucracies required lots of information to function, they started collecting data relating to state's territories, number of citizens, citizens' income, property etc., immediately. Many of these states started taking censuses, as we already noted above. Many of these states established statistical offices for the first time (the word statistics, in fact, comes from the word state itself. Here is the origin of this word: "science dealing with facts of a state'': via German Statistik , from New Latin statisticus  concerning state affairs, from Latin status state). And to what use these statistics were put to use? von Creveld again:
The most important use to which statistics were put - and which explain why, from the time of King David on, attempts to gather them often gave rise to a strom of protest - was taxation. (p. 147)
No wonder. And the same goes on today! Once centralizing powers in its own hands, the state also monopolized the use of violence via creation of centralized permanent military forces. Before the advent of state wars, kings and nobles use to fight their own battles with their own resources. But with the rise of the state the entire structure of war, which hitherto had been waged for personal reasons, was beginning to change in the direction of the impersonal state. They also centralized and monopolized the police force and the use of prisons for the state criminals.

During this time many political theorists also came to help the state consolidate and strengthen its powers. I won't discuss these theorists here, but the importance ones amongst them were, Jean Bodin, Thomas Hobbes, John Locke, Jean-Jacques Rousseau, Fichte and Hegel. Here's Martin again:
Between Hobbes and Locke, the theoretical structure of the modern state was substantially complete. Basing themselves on the separation between public rule and private authority - a distinction that had escaped both Erasmus and Machiavelli, and whose real founder in modern Europe had been Bodin - they set it up as an abstract entity separate from both ruler (the sovereign) and the ruled (civil society) but including them both. (p. 183)
As time passed by the state combined itself with rising nationalism in Europe and became ever so powerful God like entity, which we see it to be today.
Rising to the challenge, the state, embracing nationalism, deliberately sought to turn the situation to its own advantage and began to sing its own praises by every means at its disposal. Gone were the days when such things as national food, national costume, and national habits could be left to the care of mere patriotic societies; by means of its education system, to be discussed in greater detail in the next section, the state sought to harness not only them but also "culture" in the form of history, painting, sculpture, literature, drama and music. All these ceased to be either a matter for lone individuals or part of the common human enterprise. Instead they became compartmentalized into English, French, German, or Russian as the case might be; often coming under the auspices of some ministry of culture (which might or might not be the same as the ministry of education) they were subsidized and studied primarily as a means of glorifying the national heritage. (p. 201)
Once in power, the state not only wanted to rule over the bodies of its citizens, but also their minds. As Martin Creveld explained, the state's transformation from an instrument into an ideal could never have taken place if it had not also reinforced its grip on society far beyond anything attempted by its early modern predecessor. To do that they monopolized the education and welfare system. Here is Martin again:
Even as its police forces were imposing acceptable standards of behavior on the people, the nineteenth-century state felt that the time had come to invade their mind as well. During most of the history, education had been left almost entirely to the family and to the established church...Proposals aimed at setting up a state-run education system may be found in the works of such seventeenth-century utopian writers as Valentine Andrea and Gerrard Winstanley, whom we already met as an advocate of a national information-gathering apparatus....Andrea wanted children of both sexes to be taken away from their parents at the age of six and raised in dormitories...Winstanley suggested that the 'commonwealth' assume responsibility for ensuring that no future citizen should be without the requisite moral and professional education needed for making a living, thought just how this was to be done he did not explain. As the eighteenth century progressed schemes of this kind multiplied. All wanted to see education taken out of the hands of the church; but while some were motivated by what we today would call patriotic and national considerations, others merely reflected the desire to provide the nascent bureaucracy with a steady stream of compliant penpushers.
The first ruler to take a practical interest in the education of his subjects was at large Prussia's Frederick William I...
While Prussia dawdled, Bavaria 1802, the Council for Ecclesiastical Affairs was abolished and a Ministry of Education, the first of its kind in any country, founded. Besides making entry into the civil service conditional on the completion of high school, as in Prussia, the Bavarian authorities instituted compulsory schooling for all children, compliance to be secured by issuing a school-leaving certificate that would be required for permission to purchase real estate, practice a trade, or marry.
Whereas, except in Totalitarian countries, universities were for the most part given license to determine their own curriculum, the same was not true of secondary and, a fortiori, elementary schools. Consequently the instruction that they offered often became subject to the political demands of the moment; depending on how much states feared their citizens or trusted them, now practical subjects were emphasized, now more theoretical ones. (pp. 210-217)
As it was brainwashing the future citizens inside its public school classrooms (as it does today also), the state also monopolized the function of 'public welfare'. It destroyed all old support systems via force, and established itself as the sole source of support and welfare for the population. All these it did only to increase its power; it has nothing really to do with public welfare, as we all are experiencing today. 

And, for the state to monopolize all these functions, it required huge amount of resources. To acquire those resources the state also monopolized money. I let van Creveld speak:
The extension of the states' control over society, which is the most prominent development of the years 1789-1945, could never have taken place had it not also acquired unprecedented financial means to back up its claims. Previously the people and institutions that ruled society, such as nobleman and the church, had often possessed their own independent sources of revenue in the form of land and the serfs who worked make such payments possible the state not only had to raise more money than ever before but to redefine the very meaning of that commodity. Once it had done so the financial constraints that had often held previous polities in check fell away, and the state's road toward war and conquest was opened.
As best we know, the first coins were minted in Lydia during the seventh century BC, though the use of gold bars of a set weight was known in ancient Egypt and is much older...
In fact, the earliest coins seem to have been minted by private individuals, such as wealthy merchants, who used them for making payments among themselves. During sixth century BC, control drifted into the hands of the temples which, in these as well as other societies, acted as banks; only during the fifth century did city-states assert their own control. (pp. 224-225)
And the moment these rulers and states gain control of money supply in their hands, they started experimenting with paper currencies to finance mostly their wars. And, and this we all must keep in our mind, these all experiments failed spectacularly. Martin van Creveld again on these fiat paper currency experiment disasters: 
Apparently the first rulers who tried to produce paper money, i.e., a medium of payment that would not be dependent on precious metal and thus entirely under their own control, were some Chinese emperors between about AD 800 and 1300. The last of these attempts was made by the Mongol emperor, Kublai Khan (reigned 1260-94). It became the subject of an enthusiastic description by Marco Polo who lived in China from 1275 to 1292.; like its predecessors, though, it was destined to end in monumental inflation as too large a supply caused the value of the currency to fall. Apparently influenced by the Chinese example, the shah of Iran tried to imitate it in 1294, issuing paper money known as 'chao' and imposing death penalty on those of his unfortunate subjects who refused to accept it. The experiment, which was limited to the city of Tabriz, was a complete disaster and had to be ended after just two months. (p. 226)
And, during those times, common wisdom held that, whereas merchants could be trusted with money, kings could not. Concentrating both economic and coercive power in their own hands, all too often they used it either to debase the coinage or to seize their subjects' treasure. 
The earliest modern attempts to create a paper currency, thus dissolving the link between money and bullion and theoretically putting unlimited sums at the disposal of the government, were made in Spain and Sweden. In Spain during the 1630s the duke of Olivares, desperately in need of money to pay for the country's involvement in the Thirty Years war, confiscated consignments of silver arriving from overseas and compensated the merchants by means of juros or interest-bearing letters of credit. As might have been expected, their value depreciated rapidly. The result was financial chaos as well as the collapse of Spanish trade with the New World...Olivares' failures did not prevent Sweden from imitating his example in 1661. Finding the treasury empty and the country exhausted by decades of war (1631-60), the government made a serious attempt to create a negotiable paper currency backed up not by gold and silver, which it did not have, but by copper. Again, however, overproduction resulted in inflation, causing the attempt to end in a failure that was as spectacular as it was rapid. (p. 227)
Not discouraged by these paper currency experiment failures, the state continues to experiment it on us even today e.g., since 1971, the whole world is on a fiat paper currency monetary standard, which now is ripe for a spectacular failure.

And, once it gained all the control of societal resources, the state started waging its bloody total wars, which we are witnessing since the beginning of the twentieth century.

This is the brief story of the rise of the state to total power. In present time the state is in decline everywhere after achieving its apotheosis in the twentieth century. The story of the decline of the state I will discuss in my future articles. Suffice it to understand here that the state is an evil system which is with us since last 500 years or so only. And, as my next article will show, it is not invincible; it is not going to be with us forever. It is already declining and in future it will become history.