Either-Or

Is it just me or do we really define ourselves based on how others define themselves? That way, we can find ourselves in the "opposite" of what others stand for. For example, let us consider economic and political leanings.

On speed reading several blogs, there appear to be two diametrically opposite schools of thought: advocates of the “free market” and advocates of the “centralized control”. I find both distasteful, as in isolation, both are the equivalent of “one hand clapping”.

If I was to compare “centralized control” to Government intervention, then I have the following issues with both schools of thought:

a) Free markets – the problem with free markets is price distortions. Price manipulations do happen in free markets, despite best intentions. The rolling blackouts that took place in California on account of Enron’s activities are a small example of what can go wrong. Remember, the blackouts were an outcome of price manipulations in energy derivatives markets, which are financial markets. Yet, they impacted a physical market. All arguments that the market will decide the fair price have been repeatedly undone by situations where there are large enough players repeatedly causing price distortions. Add to that control over liquidity being in the hands of a few, and we have a problem. Recent failures by hedge funds, the dot-com crisis being exacerbated by flawed analyst reports etc. only point to dangers of Free Markets. Take the case of expensive private health care, or expensive privately run parks, schools etc. and I remain unconvinced that we are evolved enough to implement "Free Markets".

b) Centralized Control – it has become passe to discuss the failures of Governmental intervention. Government can run an institution either at a profit or at a loss. There are issues either way. To run at a profit, the institution requires to be competitive, and competitiveness cannot arise in a “cost plus” situation. Having competitive cost structures and demanding fair prices are at best difficult when the management is largely political in origin and has a say at procurement and price-setting. If the institution runs at a loss, then the Government must infuse more equity into the institution, and the source of these funds can only be tax-payer’s money. Of course, all these problems can occur in a "corruption-free" environment. Throw in corrpution, and well ....

As a possible way out, how about the following:
All sectors should be divided into two lines: profitable and unprofitable.
Unprofitable sectors that are of tremendous social benefit must be handled by the Government. All the rest should be parcelled off to the private sector. The Government should ensure that the sector be non-profit and non-loss as well. Funding such activities should take place through taxes, and external agencies having judicial powers should have regulatory powers over monitoring these institutions. Thus, the Government would naturally enter sectors such as Education, Railways, Rural infrastructure etc. As and when the sector reaches a stage of profitability, the sector must be privatized and the Government would then play the role of a regulator, and taxes would be slashed as the Government would no longer need the funds.

While I have over-simplified several arguments, what I am alluding to is a “Middle Path”. An enterprise or activity (or even an individual) can be successful only if it is profitable, perpetual and growing. Any failure on one of these three parameters should lead to the “creative destruction” of the enterprise. Government must evolve and enforce policies that will create a viable market for such activities. Having enforced such policies, the Government must then stay out.

The essential goal of a Government is to ensure its redundancy.
The essential goal of a Private Institution is to ensure the Government’s redundancy.

Another analogy: Compare "Free Markets" versus "Centralized Control" to the battle of “Open Source Code” versus “Proprietary Source Code”. Personally, this argument can get very juvenile: both have their place in this world. In all infant industries, the “Proprietary Source Code” approach is required. As industries mature, standards and consortiums begin to be established, that is when the situation is ripe for the creation of an “Open Source” standard. The “Proprietary Source Code” player would respond by seeking infant markets, and by opening parts of his code in the mature markets. The only exception remains the gaming industry, where proprietary standards continue to dominate despite being intensely competitive and mature.

Key philosophical learning here: the more we continue to think in the “Either-Or” framework, more will we continue to limit ourselves. It is even more dangerous that we use the “Either-Or” framework to define who we are and how we are different from each other. The day we think in the “And” framework, that is when real progress takes place.