Just like India is the world’s largest potential market, India is also the world’s largest potential democracy. I don’t think what we have currently in India to be a true democracy. It is what I would call a cargo cult democracy. It is instructive to examine explore the two ideas of democracy and markets in the Indian context.

First, markets. One of the most important lessons mankind has learnt is that markets work. There are, however, very important pre-conditions for markets to work. When those pre-conditions are not met, markets fail. That means, the workings of markets in the presence of failures leads to socially sub-optimal, and even harmful, outcomes. Indeed, if the necessary conditions required for markets to function are not met, market fundamentalism can lead to positively disastrous results.

Markets allocate resources efficiently only if there are no information imperfections, there are no externalities, there are no public goods, there are no scale economies, and so on. Information imperfections such as asymmetric information lead to market failures such as pointed out by George Akerlof in his seminal paper titled “The Market for Lemons”. Scale economies allow monopolies to develop with its attendant losses and which then require regulation to address them. Public goods are a necessity in any economy and markets are notorious for under-providing them. Government intervention is a way to nudge markets to provide optimal amounts of public goods. Markets fail when there are externalities: markets over-provide goods with negative externalities, and under-provide goods with positive externalities. Again, regulation is required to fix these failures.

The important point is that markets work but only if certain necessary conditions are met. Consequently, imposing markets on a system which does not meet those often stringent conditions could result in unintended consequences.

Just as the market is a great organizing principle in the economic sphere, so also democracy is a great and noble organizing principle in the political sphere. Democracy works, provided its pre-conditions are met. The necessary conditions include at a minimum: full information, accountability, economic freedom, institutional memory, and so on. Democracy cannot work when the electorate is nearly totally uninformed, where there are strong vested interests, where the notion of accountability is non-existent, where voters can be intimidated and bribed, where the culture is steeped in feudalism, and where illiteracy, superstition and corruption is the norm.

India’s democracy is at best a cargo cult democracy. Here is a brief news item from today’s The Times of India page 3. The Maharashtra Congress Committee vice-president Anant Gadgil plans to switch to the Shiv Sena because he did not get a ticket for contesting the elections. He wrote to the chief Sonia Gandhi and said:

Our family is known for its loyalty to the Nehru-Gandhi family, and to the Congress since independence. We always remember the recognition given by Indira and Rajiv Gandhi to my father for his utmost loyalty. Please let me know whether loyalty has no meaning left in the Congress party.

If those words don’t epitomize what Indian democracy is all about, I don’t know what does. Here is a person who wants to represent the will of the people, his constituency. And all he has to show for his qualifications for that task is his loyalty to a particular family. He does not plead that he has served the people of his constituency competently, he does not point out that he is capable of helping his society do better, he does not say that he understands the problems that his people face and that he has solutions, etc. Most likely he has not done any service nor is he capable of doing anything for the people. In keeping with the prevailing customs of the political parties in India — especially that of the Congress Party — all that he has to show is that he and his father have always been loyal lap-dogs of the of the ruling family.

Mr. Anant Gadgil may be an ignorant wanna-be. But he is not alone. His sentiments are shared by practically all “leaders” of the Congress party, from Messers Manmohan Singh and Narasimha Rao to the lowliest party worker. All they have to demonstrate is unquestioned loyalty to the Nehru-Gandhi family and they will get the nod. As self-interested rational individuals their stance cannot be faulted. The tens of millions of ignorant illiterate voters will vote for the Congress party simply because they recognize the Gandhi name. Therefore all Gadgils and the Singhs and Raos have to do is to plead their loyalty and they will get a ticket and therefore get elected.

To Anant Gadgil: Yes, loyalty still trumps everything else for the Congress party. Sorry that your nose doesn’t appear brown enough, though.

India has a cargo-cult democracy because it appears to be a democracy on the surface. Like a movie set, the facade presents a reasonable facsimilie of the real thing, but behind it, there is little substance. The hundreds of millions go through the motion of expressing their preference. But uninformed preference expressed haphazardly in a system that is corrupt to the core is not a receipe for a system of governance. It is no wonder that India ends up with “leaders” such as Rabri Devi and Laloo Yadav and Sonia Gandhi.

Democracy does not work in India. That is not to say that the fault lies with the idea of democracy. As a system of governance, there are few alternatives, just as markets are the best way to organize economic activities. But markets are prone to failures if its pre-conditions are not met. So also, democracy does not work in India because its necessary conditions are not met.

The challenge is therefore to ensure that we address the many failures that impede the workings of a democratic system. Installing electronic voting machines will do nothing towards that. Nor will the endless exhortation for people to go out and vote change the outcome. Even if every one of us were to vote, it would still be pointless if the choice we have is to elect either Tweedledum or Tweedledee.

It is a long and hard road to the place where democracy has any meaning. The first step along that road is undoubtedly universal primary education. Universal primary education is a prerequisite for universal adult franchise. Without primary education, you cannot have a literate and informed adult. Without an informed electorate, you cannot have a meaningful democracy. Perhaps that is the reason for the neglect of universal primary education — for that would down the road mean that the feudal lords of the ruling families will no longer be able to rule based simply on loyalty and may even have to work for a living.