Atanu Dey On India's Development

On Competition and Ideas

The Dance of Creative Destruction

At the shining bright core of our galaxy of ideas lie a bunch of super-massive ideas that are tightly bound to each other. The core’s gravitational attraction holds the galaxy together, draws in stuff and transmutes them into higher elements.

Exploring the metaphor a bit further is interesting. At the center of galaxies dwell huge black holes which destroy both matter and time. And like the great god Shiva — the Mahadeva as Nataraja, the king of dancers, dancing the Tandava, the cosmic dance of creative destruction — the galaxy core produces novelty and thus advances the evolution of the entire galaxy. Black holes, just like Shiva, destroy time. Curiously, the Sanskrit word for time is the same for black: “kala”. The universe evolves because ceaseless change is imposed upon it through the dance of creative destruction.

Evolution. It is hard to escape the gravitational pull of the idea of evolution. The idea goes back into antiquity. But it was only recently (in terms of historical time) in the mid-1800s that Charles Darwin (1809 – 1882) pondered the biological variant of evolution and figured out the mechanism. It was natural selection. That is one of the superstar ideas that populate the core of our ideas galaxy. Everything that is known about biological evolution can be explained through natural selection.

Natural Selection

Darwin had patiently observed nature and cataloged a heap of facts during his voyage on the HMS Beagle which ended in 1837. Then another idea pushed him to an inspired guess on the mechanism which produced the diversity of species in the world. That idea came from a professor of political economy and Fellow of the Royal Society, Thomas Malthus (1766 – 1834).

Malthus had considered the matter of how societies function and concluded that the struggle for food is critically important. The competition for food would result in winners and losers. Populations would increase till the standards fell to subsistence levels for the most fecund segment of society. The biological imperative to reproduce as profligately as possible lead inexorably to a situation where natural resource limits are reached and the weakest sorted out of the race. At the center of the drama of life was competition for resources.

Darwin had observed the natural world, pondered the evidence, and read Malthus. That’s what he needed to figure out natural selection. But then so had another contemporary of his: Alfred Russell Wallace (1823 – 1913). Like Darwin, he studied the natural world, pondered the puzzle of the diversity of species and he too had read An Essay on the Principle of Population (final revision published 1826), by Thomas Malthus, and arrived independently at natural selection. Darwin was about to be scooped by Wallace and rushed to publish On the Origin of Species by Means of Natural Selection in 1859.

Competition

The centrality of competition in the natural world is immediately understandable to anyone who has observed nature. Economists appreciate the power of competition and it is not surprising at all that natural scientists like Wallace and Darwin incorporated competition in their explanation of the biological world. (Darwin and Wallace were competitors!) They realized that there was no divine designer involved in the creation of variety in the natural world. There was no grand planner and consequently no grand plans.

The biological world evolves autonomously. There was only competition for resources and the universe was supremely indifferent to who were the winners and who the losers. Natural selection is the mechanism which all living systems rely on for their evolution.

The twin ideas of evolution through natural selection and competition are inseparable. I find it unsurprising that the central organizing principle of biology owes something to economics.

It should be noted that natural selection and competition are descriptive rather than normative features of the world. We are merely noting how things are, and no claim has been made so far on how they ought to be. The universe is neither moral or immoral; it is amoral. That eventually it gave rise to sentient beings that are capable of making moral judgments is itself a result of amoral processes.

In the rest of this essay I will argue that from a certain perspective, competition is good. That is clearly a normative statement and requires some support. My claim is that it is very significant that competition leads to outcomes that are on balance good and desirable.

Only Likes Compete

Let’s leave the biological world aside and for now focus only on the world of artifacts and manufactures. I am writing this on a laptop and using all sorts of hardware and software tools. I consulted the wikipedia, searched using google, used Firefox and Chrome. The tools keep improving. The Microsoft internet browser, Internet Explorer, was born retarded. Relentlessly, the competition has forced it to become much better. Why? Because in the struggle to survive, it has to compete. Absent competitors, Microsoft would have little incentive to invest resources in making IE better.

The iPod was pretty cool when it was first introduced. Yet the constant improvements that Apple made to it were not altruistically motivated. Today’s iPods are better than yesterday’s. Look around and note that improvement and competition go hand in hand. Note that where competition is prohibited, things don’t get better; they don’t have any reason to.

Let’s keep in mind that only likes compete. Only those entities that occupy the same ecological niche compete against each other. Predators compete with other predators; prey with other prey. Toyota does not compete with Pepsico or with Microsoft. Google competes with Microsoft, not with Delta Airlines. More generally, on one side of the market, producers compete with other producers, and on the other side of the market, consumers compete with other consumers. Producers and consumers don’t compete in the marketplace.

Producers Must Please

It is very important to understand this point. It is fatally wrong to imagine that producers compete with consumers. Socialist thinking is born dead because it does not understand that. Socialists imagine that the producers interests are opposed to the interests of the consumers. This is wrong. Producers and consumers appear to have divergent interests — producers want to sell as dearly as possible and consumers want to buy as cheaply as possible. To maximize the appeal of its products to consumers, however, a producer has to produce quality products and price them such that it wins against competing producers.

{I swear on everything I consider sacred and dear to me that I am not making this up. While I was writing that last paragraph, I received a spam message which begins thus:

“Dear friend:

We are an electronic products wholesale .Our products are of high quality and low price. If you want to do business , we can offer you the most reasonable discount to make you get more profits. We are expecting for your business.” [Errors in the original.]

See what I mean?}

Note this down. Producers don’t compete with consumers but rather producers compete for consumers. Producers compete with other producers for consumers. It is that competition that drives innovation and that is what evolution is in the artificial world of things. Competition in the world of things is fine and good. But what really matters is the competition in the world of ideas. Ideas trump things. The evolution of ideas through competitive pressures leads to innovation. That is what accounts for all human progress. I’ll come back to that shortly.

Societies that permit producers to compete develop good products. All monopolies are therefore harmful for society. It does not matter if the monopolist is a public firm or a private firm. If the producer does not face competition, it has no need to improve. Examples are legion. But just as an example for those who are familiar with India’s post-colonial history, consider the evils of Nehruvian socialism which restricted most competition in the private sector, and in many important cases created public sector monopolies. The result was widespread impoverishment of the economy and legendary levels of poverty. Material poverty in India is unquestionably the predictable outcome of not allowing competition.

Freedom from Control

Why the government did not allow competition is fairly easy to state. Monopolists collect super-normal profits (which economists call “rent.”) Rent-seeking by those who control the levers of government makes public sector ownership of important sectors of the economy very attractive. Furthermore, by handing out licenses to private sector firms, the government makes sure that it restricts competition in those sectors that would be the most valuable for extracting rents. The government of India thus directly controlled activities such as railways, power, steel, telecommunications, etc., directly and indirectly though license, quota, and permit requirements, controlled other aspects of the economy such as manufacturing, and services.

India is one of the least economically free countries in the world. You don’t need to go consult any well-researched academic report to conclude that: you merely have to walk around India with eyes open. The obvious poverty and economic backwardness could not be the result of economic freedom. Four out of five Indians subsist on less than $2 a day. That’s 800 million people — more than the combined population of the US and EU.

Want another telling piece of evidence that the Indian economy was (and indeed is still is) a slave economy and not a free one? Well, have you heard the prime ministers of India talking about impending or on-going “liberalization” of the economy? Surely, if the economy were not enslaved, there would be no reason for anyone to claim that they stand for freeing the economy. One would be very surprised if any Hong Kong politician were to proclaim that he would liberalize its economy because HK is already free.

Free people don’t need emancipation. Free economies don’t need liberalization.

India is apparently politically free (except for foreigners influencing India’s political fortunes), but India is not economically free. And until it becomes economically free, it will continue to remain what used to be called “underdeveloped” and which is now euphemistically called “developing.”

Ideas trump Things

So what exactly is the foundation on which a free economy rests? Free ideas. If you are free to think and free to express the results of your thinking, it leads to wealth. The preceding discussion about competition holds in the arena of thought. The heterogeneity of humans implies that different people will have different ideas. These will compete in the ideas space just as vigorously as products compete in the products space.

Gautama, the man who became the Buddha, said that all compound phenomena are impermanent and therefore all things must pass. I would add that all things are imperfect. Biological things evolve through natural selection and diversify and become “fitter.” All human-created things are imperfect but tend to become less imperfect as a result of evolution in the product space. Compare today’s cell phone with one of just a decade ago. Ideas — the product of human cognition and rationality — too are imperfect and tend to become less imperfect as the machinery of competition refines them.

The way to kill progress is to monopolize the production of ideas, or even worse to prohibit the creation of new ideas. The US is a shining example of a society which allows and encourages ideas. (There will always be aberrations from time to time, but I am speaking broadly.) The ideas compete and thus evolve. The better mouse trap is produced by a better idea about mouse traps. The browser continually gets better because somewhere someone is thinking up better ideas. Free people produce innovation because free people compete in the plane of ideas.

The Failed World

They call advanced industrialized countries the “first world.” There is another world which I call the “failed world.”

Contrast the American society (and more generally the Western European society) with its polar opposite: the Arab world. First fact: they are abysmally poor in general. Material poverty is endemic. There is a wealthy segment of the Arab world but that is not earned wealth. They did not produce it; due to a geographical accident, they found that they were sitting atop oil. But remember that the oil was fairly worthless till the non-Arab world developed the technology for using oil.

What prevents the Arab world from developing? It is their ideology. It is an ideology that is limited to what was known to a bunch of fairly ignorant people in the Arabian peninsula (even by the standards of 7th century CE world.) That ideology claims that it had been created perfect and therefore it cannot be ever improved upon. In fact, it prohibits at the pain of death any changes in it. All its ideas are frozen in time, and it arrests the development of any society that falls prey to the ideology. If one were to segregate and isolate the Arab world from the rest of the world, the Arab world will never see any innovation or progress. It is the constant infusion of goods (not ideas) imported from outside the Arab world that maintains it even at the low levels of existence. Without this “aid”, it would rapidly regress to the conditions that prevailed in 7th century Arabia.

India and its neighbors

Closer to home (speaking from an Indian perspective), there is a natural experiment that occurred in the Indian subcontinent. India used to extend to the east and west of present day India. Many centuries ago it even included Afghanistan, then a place of great learning and prosperity. Islam defeated the land centuries ago and now it is a place known better for relentless war and crushing poverty. Afghanistan is so poor that India sends it aid. Just a few years ago, the people of Afghanistan even destroyed the remnants of their illustrious past — the Bamiyan Buddhas — because Islam decreed it.

In more contemporary times, India’s borders shrank further with the creation of Pakistan (and Bangladesh.) The population of all three countries are similar in many respects and naturally so because they occupied the same geographical niche for millennia. Yet the fortunes of Pakistan and India have diverged significantly in the last half century. For all practical purposes, it is a failed state about to implode. That it lasted so long is thanks to the geopolitical strategic games of the post-cold war era. Now that Pakistan has outlived its use for the US, the US is discarding it with all the finesse of handling a used condom. What distinguishes India from Pakistan and Bangladesh is that they are Islamic states and therefore rigidly wedded to an ideology that does not permit ideas to flourish.

Market versus Command-and-control

What distinguishes the successful from the unsuccessful economies of the world is that the former are market-driven and the latter are command-and-control. By market driven is meant that there is competition among buyers and competition among sellers. This competition among producers and consumers is not limited to just the product space but extends more importantly to the ideas space. Exhibit A: the former Soviet Union and other communist states. They controlled what was to be produced by whom and in which quantities and when. More damagingly, they controlled who was to think what. Result: economic collapse.

Communism is an ideology that prohibits free enterprise. It wants a monopolistic control of the entire economy, not just bits and piece of it here and there. And it wants the monopolistic control to be in the hands of a select few. The same with monotheism. There is only One True God ™ and there is a book which has every truth eternally recorded in it, and the founder of the religion has absolute control over it for eternity, and no novelty is allowed. There is only one Lord and everyone has to submit to it — both in the here and in the hereafter. Submit now so that you can get your rewards in the hereafter. Pay now, travel later. Good to be in control of such a great scheme.

Monotheism

Monotheism in the ideas space is the equivalent of monopoly in the economic space. They are supremely harmful.

The market system, in contrast, has no central controlling authority. It is most significantly a marketplace of ideas. Sure many of the goods bought and sold are things, not ideas. But look under the hood, and you will see that the engine is an idea. All things are born first as ideas.

The market, like the dominant Indian faith, has millions of gods. There is no one authoritarian, vengeful, cruel god that you have to obey or else you get eternal punishment handed down from it. The non-monotheistic gods are like a competitive marketplace of ideas.

How did the Americans succeed in creating a market economy when traditionally they are followers of a monotheistic faith? They did that because the founders of the country were smart and built a wall of separation between the state and the church. It is the United States of America, not United Christian States of America. Some in the US are busy trying to bring down that wall but I am pretty confident that it cannot be done.

How about Western Europe? They don’t have a wall. True they don’t have the wall but they just ignore religion. They don’t need the wall because they are too smart.

The End

So where does all this lead to? Economic freedom is critically important for economic growth, which in turn is the basic for development. As long as a monopolistic control is in place — whether the State or monotheistic faith — there will be no marketplace for ideas. Lacking a marketplace for ideas, there will be no competition. No competition would mean no evolution and no innovation. No innovation means that progress will be impossible. But populations would continue to grow and bump against natural resource constraints and end up in a Malthusian trap.

Note that a marketplace where ideas compete is itself an idea, and it is a fertile idea. Monotheism is also an idea but it is a dead idea. It marks the end of all ideas because it prohibits a marketplace for ideas to compete in. It imposes a monopolistic control over human minds which is more pernicious than its control over the human body.

At the core of human civilization are a set of ideas so powerful as to thrill the prepared mind and give meaning and purpose to life. The idea of enlightenment and freedom expounded in the Indic philosophies like Buddhism, Jainism and Hinduism are the philosophical equivalent of the Western ideas of free markets and economic freedom. The two are natural allies and complement each other, just as monopolies and monotheism are natural allies and have similar outcomes in their respective fields.

Free markets and economic freedom is humanity’s destiny. Liberation from monopolies is as assured as the liberation from the prison of monotheistic mental prisons. It may take some time, however.

  • Vaidehi

    Continuation:

    All scurrilous & vituperative * literature * in the name of freedom of expression. With no one to punish them. And ex communicate.

    Such unbridled licence is ANTI VEDIC.

    Which is precisely the reason behind disasters, calamities, bomb blasts……..

  • Amit

    “The idea of enlightenment and freedom expounded in the Indic philosophies like Buddhism, Jainism and Hinduism are the philosophical equivalent of the Western ideas of free markets and economic freedom.”

    Yet Siddarth Gautam, when he gained enlightenment and became free, didn’t set out to start a corporation or a business venture, or collect “stuff” – as you call it. And at the core of his teachings is the idea of ‘compassion for all’ – which is as far removed from competition as it can be. Vardhaman’s life followed a similar trajectory. They didn’t advocate for harming the environment – au contraire, but the agents of “free market” base their profits on doing just that. Let’s not even go into some other basic teachings like “asteya” and “satya” – also found in some Vedic philosophies.

    You mentioned cool iPods. So what happens to an iPod and all its components once it dies and I get a new version? Are the materials toxic to water and soil? Are they safely converted back to raw materials, or reused in some way? Or is it “out of sight, out of mind,” somewhere in a landfill in a “developing” country?

    I just love reading your “Objectivist-Vedic-Indic” cocktail philosophy mix, created in a free-market blender. :D

    ======

    But in general, I do agree that India needs more economic freedom.

  • Vaidehi

    Amit ,

    You are right as rain !

  • BytePro

    Three points:

    (1) equality a priori: A nascent idea, a new entrant in the competition is equal, indistinguishable from the others. The “merit” ought to be judged at the end of the game rather than before. The mechanism needs to function like the “blind watchmaker” with – as said in the post – the supreme indifference to who are the winners or who are the losers. Apart from prescribing the rules, and enforcing them, the “regulatory” mechanism needs to be indifferent. It must admit any willing player – an idea, a new product etc. – into the game without prejudice. This idea appears in various forms: laws of physics are same in the universe, or evolution is blind, or the state as the indifferent regulator of the market, or the uniform civil code.

    (2) The core concept of freedom in the market is much deeper than it’s particular application to acquire profits. The “free market” being free, merely permits the use of the idea of an indifference to environmental consequences in the game. This indifference merely has a potential to wipe off an entire species, or even life as we know it. But the evolution, and the universe still goes on – indifferently! On those time scales, it merely is that a certain “approach” failed, i.e. the human species – for all it’s (self-defined!) intelligence, was unfit!

    Whether we choose to disregard the environment, or come up with ways to include it, the concept of freedom a priori is needed, i.e. it is a prerequisite.

    (3) That ideas compete freely is itself an idea. And so is the idea of a priori equality. I believe that this introduces certain problems due to self-referentiality. Ideas drive their concrete consequences which actually compete since it is the concrete form that requires finite resources. The finiteness and the materialness of resources permits a determination of their cost. If that is correct, then I am unsure about how to determine the cost of an idea itself! The cost is an object that allows us to fix the success in a competition. One way out is to treat all ideas as equal and free.

    - Abhijat

  • SaratKumar

    Good read, as always.
    I have often wondered, what explains the growth and, to some extent, development of China, considering the fact that it is a communist state? Looking forward to something about this from you.

    -Sarat