Why just UP? The nation-state itself is too big to govern

Not long since the US government came up with the farcical notion of “Too big to fail” (TBTF) for its large financial institutions, our own honourable Rural Development Minister, ”Jairam Ramesh, came up with his concept of “ Too big to govern" (TBTG)  in the context of Uttar Pradesh. For once, I agree with a Congress member. But just as TBTF is the outcome of a flawed monetary system (fiat currencies, manipulated interest rates and overregulated banking Institutions), TBTG the an outcome of a flawed governance model (the cradle to grave nanny state).

At the outset, it’s almost useless to argue with people who have a socialistic mindset and a government-knows-best attitude, despite decades of failed experimentation with socialism and the enormous benefits that we have witnessed in the very limited transition towards capitalism .

The I-weep-for-the-poor Congress think-tank types continue to love capital draining programmes such as NREGA and the right to food. The BJP hasn’t been too far behind in their manifesto with their right to healthcare, and the Aam Aadmi Party has done its share of beggaring the state with its “right to 700 litres of free water”. That said, what AAP has promised on the corruption front, we seriously need another party to do so on the economic front. As things stand, there’s very little differentiation amongst the three parties on their economic agenda.

Back to our honourable minister Jairam Ramesh and his TBTG idea. I have rarely observed him saying something that makes economic sense, but in this instance, I do. The way we have structured our country and the agenda of governance, it’s impossible to deliver. So while I wholeheartedly support his theory of four UPs, I would extend the logic and do the same for all states. In an ideal scenario, I would prefer a billion-states, but since it’s an unlikely event in the near future, I will accept honourable Ramesh’s version. More the merrier. At least for now.

But while we are on this topic, I would like to ask our Ramesh a question – does he have any opinion on how big a country can be before it ought to be split up for the sake of better governance?

Of course, I would prefer seven billion nation-states, but as in the case above, the more the merrier.

Simply put, the nation-state has long outlived its utility and today merely serves the purpose of benefiting a privileged few. The political entities across nations are largely a parasitic class that enriches itself at the expense of citizens and creates an economic system where the politicians are in bed with businessmen. Of course, as bad as the current system sounds, Prashant Bhushan’s public sector idealism is much worse, and I would any day prefer fascism (that’s the precise term that describes the nexus of political class and business houses) to honest communism.

What would the ideal nation-state do? Very little… perhaps just the police/army and the court system (ironically this was Arvind Kejriwal’s opening remark at the recent CII meet, though I have serious reservations about whether he understands the implications of the same). But it’s very rare for an entity to have a monopoly of force and then limit its jurisdiction to just that. We really need politicians of the class of Ron Paul in the US to resist the temptation of usurping power – but we have none in that category. Or even close. The well-intentioned few in the political system today merely serve the purpose of UI (the reader can interpret that as either as “User Interface” or, what was more colourfully described in the former USSR as “Useful Idiots”) who lend legitimacy to political institutions.

Speaking of Ron Paul, I am surprised that in this day of access to instant information, even the well intentioned amongst our political class are rarely aware of his libertarian message of limited government and sound money. A doctor by profession who joined politics due to Richard Nixon’s act of closing the gold window in 1971, Paul has been one rare beacon of liberty in the power hungry political class – not to mention his clairvoyance about the 2008 financial crisis years before it really happened. His books – on economics, the Federal Reserve, foreign policy, role of government in a society, etc. - ought to be on the shelves of every truth loving individual as well as upstart political parties like AAP and new entrants to politics like Nandan Nilekani - there just cannot be a better role model for a politician.

So what lies ahead? In the broad sweep of human history, as a society, we have transitioned from owing allegiance to tribes and then to kings and currently to a geographical entity known as the nation-state. This has been a fairly recent occurrence on the scale of human civilisation and, as they say, “this too shall pass”. Why so? Hear Ernest Hemingway on this:

The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.

We have been on the path of permanent ruin for a long time now – that is, a little more than a 100 years since as a society we moved off the gold monetary standard in 1913. Despite the external signs of stability in the US and eurozone economies, I would say that the undercurrent of hyperinflation of currencies is still very strong and inevitable. That’s what I have written for a few years now and I would venture on to say that the inevitable is increasingly looking imminent as well.

How would governments react under such circumstances? Would they realise their follies of central planning, paper currencies and, indeed, the obsolescence of the very entity itself? Can we transition to a free market society based on a voluntary exchange without a parasitic entity sitting in between with their regulations and taxes? That, as they say, would soon be the Quadrillion-dollar question.

About the Author

Shanmuganathan “Shan” Nagasundaram is the founding director of Benchmark Advisory Services – an economic consulting firm. He is also the India Economist for the World Money Analyst, a monthly publication of International Man. He can be contacted at  shanmuganathan.sundaram@gmail.com