Real Democracy and Economics
The largest democracy in the world is not so democratic too. The importance of private property rights and individual liberty have often been neglected and underestimated. What is believed is when people are given voting power, they are given freedom too. This kind of belief underestimates economic freedom and considers only political freedom ultimate.
Collectivists also dominate the political system. Socialism, nationalism, social democracy, etc… are species of collectivism. Even though their advocates tussle with one another, they are united against individualism. Therefore, despite the fact the political parties are rivals of one another, they are much united against individual liberty in India.
Individualism stands apart from the political ideologies of different forms of collectivism. Suppose an individual is given liberty in the true form. In that case, the individual is also handed to take responsibility. Liberty without responsibility is an illusion or would be “liberty from responsibility”. Individualism lies in people being rational enough to lead their lives and make important decisions. Suppose everyone starts looking for their well-being. That also brings growth and prosperity to society. It takes a practical approach over the utopian.
Liberty is not just a moral fact but also an economic one. The main reason why we need liberty is because it is economically superior. Each individual has local knowledge of time and place that helps them taking important decisions. Due to this, a decentralized and unregulated economic system has prevailed over others in history. The science of economics is also based on individualism, especially at the micro level studying the mechanism of the market system.
In a market system, the resources are allocated with a supply-demand rule, and there is private property and a free flow of prices. In a free market, the market is controlled by consumers. This system enhances fair competition where competitors value the consumers for their survival. Hence, consumer sovereignty exists in the market system as the output produced in a market is according to consumers’ preferences.
Consumer sovereignty in a free market can be seen as the truest form of democracy. A democracy where neither minority nor majority dominates but everyone (each to their own) fulfils their demand according to their budget constraint (limited resources). With the state taking control, the spirit of competition is deteriorated. Even in a mixed economy, there is unfair competition as the government can direct other firms into the competition and survive despite facing losses. In losses, any other firms can’t survive for long, but Public Sector firms can because of tax revenue (which also comes from the private firms). Either the system can be in control of the government or consumers.
Consumers aren’t a section of society and constitute all. In a consumer sovereign market system, the voting power lies in the income or money of the consumers—every consumer votes with money in their hand. So people don’t have equal votes, but they have equal liberty and rights to earn higher votes. In a market, a firm won’t necessarily favour the majority but would rather favour the consumer that can buy more of its goods and services. This is how the market system works; not capitalists or workers run the market, but consumers do. This form of democracy is based on individuals’ competency and not a majority’s existence.
A region run by the majority often tends to lead in the creation of propaganda and hampers the existence of a “life of thought”. As F.A Hayek wrote in his classic The Road to Serfdom that
It certainly does not justify the presumption of any group of people to claim the right to determine what people ought to think and believe”……… “What is essential to make it serve its function as the prime mover of intellectual progress is not that everybody may be able to think or write anything but that any cause or idea is argued by somebody. So as long as dissent is not suppressed, there will always be some who will query the ideas ruling their contemporaries and put new ideas to the test of argument and propaganda. This interaction of individuals, possessing different knowledge and different views, is what constitutes the life of thought”
What is right or wrong cannot be decided by the majority (or even intellectuals too) always. But, with the help of this belief, it has been easy to control the system by spreading propaganda and ignorant values. This needs to be avoided, and most systems running on such belief have not been able to succeed too.
Apart from voting being time-consuming and based on the ignorance of voters, some information cannot be recorded or transferred by individuals or consumers themselves. Every consumer has unmet needs that keep changing over time too. These kinds of information aren’t foreseeable and, at times, so subjective that they cannot be recorded. Consumers can communicate only explicit knowledge and not tacit knowledge.
In a market system, Entrepreneurs deal with these problems. They use their local knowledge to take decisions, and this knowledge might not be perfect, and decisions taken can go wrong, due to which not all entrepreneurs succeed. Entrepreneurs try to find the problems of consumers and solve them keeping in mind the budget constraint of consumers too. Entrepreneurs can be considered a blend of innovators and businessmen in simple language.
Voting cannot bring competition between different firms but would rather bring competition between political parties or between those who will transfer powers. Entrepreneurs and Businesses have the risk-taking ability, and unlike political parties, one’s property and wealth would be put at stake, not the Public Finance. Also, there isn’t one Entrepreneur in the market, but many have different local knowledge of time and place and would deal with different problems in their ways. The risk-taking ability of entrepreneurs makes them bring something new regardless of whether it succeeds or not. This leads to the prosperity of society with innovations that are market-friendly and efficient and not simply inventions.
Some inventions or innovations might be better but might not be for consumers. It is important to make innovations keeping consumers in mind, and that’s what’s entrepreneurs do. Price signals and consumer preferences are important for entrepreneurs to make decisions, and that happens in a free market system.
Entrepreneurs will take decisions based on their self-interests, and to safeguard their interests, they must serve consumers well. Politicians and bureaucrats are also humans and have self-interests, based on which they will take decisions too, but it will be in a collectivist system where the consequences of the deeds of one are faced by the other. Their self-interest is guided on a short-run basis where they look to keep their image clean for five years, but the same isn’t true for a business that has to be alive in the long run. This is why we tend to see good businesses and entrepreneurs having a long-run approach, whereas the decisions of politicians are short-run sighted. Unlike the market system, the decisions of politicians will favour the majority only and neglect the minority.
Also, importantly, entrepreneurs are much better than bureaucrats for the development and prosperity of any economy or society. Bureaucrats don’t have any risk-taking ability like the former, they don’t have any fear of losses, and they being in the public sector, lack incentives to do the work with full intent and consistency. This is the truth that many won’t accept. Our country is a worshipper of bureaucrats that don’t even have a very productive contribution to the country compared to others. Rational citizens themselves can handle the work they take under their control in an individualist system, but then they assume that people aren’t rational and need their aid.
If politicians and bureaucrats were as capable as it is believed and claimed, the country would be better. There wouldn’t be any crisis in 1991, and there wouldn’t be a need for reform. The control was already given, but the results weren’t delivered; who suffered? The people.
Liberalization, privatization, and globalization freed the market system to an extent giving more liberty than earlier. Despite the failures of politicians and bureaucrats who were given to run the country, they still carry a lot of power and high status in our society. What could be handed to the people has still been in their control, which is why people from such sections of society support collectivism even more.
Apart from that, the people have supported them, going against themselves. Even though Liberalization and Privatization saved the country in 1991, many are reluctant to accept that it is needed to a higher degree. There is still a belief that it is the government’s role to provide people with jobs and improve the lives of people experiencing poverty. If it were so, there wouldn’t be any need for the private sector, and if it were possible, then the condition would have been better pre-1991.
Some talk about the freedom and benefits of a caste group, while others want the freedom and benefits of an ethnic group. Some want the freedom and benefits of capitalists, while others want that of workers. But why nobody talks about the freedom and benefits of consumers? Why nobody talks about the freedom of those who deserve the best service by spending their hard-earned money? Why is it always about supporting a section of society and not all fairly and practically? It is impossible to give one more benefit by not sacrificing the other. Those who go with such an approach are just more selfish than they portray, and it’s not surprising because every human has self-interest, but those who claim to be saints are even worse than others. Also, giving consumers freedom and benefits means to every consumer, not just a particular type or group. Otherwise, it makes no distinction with the former.
What many claim to not support are also those who play a big role in uplifting that. They do this either due to ignorance or simply for self-interest. It is not wrong to have self-interest; it is natural, but a system needs to be built so that freedom doesn’t sacrifice others—each living within their freedom and carrying their responsibility.
This is provided by market mechanism or the so-called “invisible hand” that is not just essential for the allocation of resources in the economy but is also important for the stability of society and safeguarding the freedom of individuals. Politics has played a big role in hindering economic growth, but true values of economics sciences like consumer Sovereignty, a fair, competitive environment, freedom, private property rights, voluntary exchange, etc., can improve the country’s political structure. It has happened in most places, and a place with brilliant minds can be no exception.
No form of collectivism can claim to be democratic, and no immorality of any form of collectivism can be protected by mere voting democracy. Socialism, nationalism, communism, etc., systems based on the essence of collectivism have a lot of similarities and are united opponents of individualism. They all assume individuals to be irrational or helpless or try to propagate that in public for their interest.
Individuals are well capable of leading their lives and also contribute productively to the economy. No political body or intellectual can claim to be more capable than the rest or even eligible or superior to control anyone. A government is needed to take care of public goods that are non-rivalrous and non-excludable. These kinds of goods include air, law, and military. It can be club goods (non-rivalrous like public goods but excludable) like roads. Otherwise, for private goods, the individuals can handle it well. Those involved in politics might know this quite well. They don’t tussle with one another, but it is their supporters that do who are lost in their ignorance and dogmatic cult culture.
Author: Yash Dubey Yash Dubey holds a B.A. in Economics from Galgotias University and draws inspiration from F.A. Hayek. He has particular interest in Neoclassical and Austrian Economics.