Tuesday, December 18, 2018

Should RBI be independent?

Forwarding an opinion piece my an MP from Odisha. I'm relating this with the Federal Reserve problem in the US. There's no absolute thing as "independence" for institutions: Either they are accountable to the people via elected representatives, or they are accountable to a private oligarchy that can and usually does have vested interests that go against the best interests of the people.

An independent CBI, as is widely talked about in the Indian political dissent discourse, is another red herring for me: that would make it an intelligence agency that is truly rogue and can any day start undertaking clandestine assassinations of emerging people's leaders, whistleblowers, journalists etc with no place for the population to go to to stop it. Many times the cure being advocated for is much worse than the original problem.

I had a similar problem with one of the Jan Lokpal movement's core demands too : "Independent". Where effectively all destructive decision making powers, without any constructive ones, are put in the hands of a tiny tiny group of people. Thought up by "perfect" people in their own image, assuming that they will always find "perfect" people to fill the post. Sorry, but no.

In much of this I see a cop-out, a running away from a difficult collective responsibility. First we put rotten leaderships in power, and then we demand that all the institutions they are corrupting, be made "independent". Going further and further down that road leads to a situation where the people of a nation will have absolutely no say in how it is run - everything will be controlled by an elite class that can any day be corrupted. This is precisely what Europeans are rebelling against right now. It's not a sustainable path to go on. The more realistic solution is the more difficult one we were running away from : voting wisely.

How to lessen the burden and scope of disaster here? Simple : Decentralization of executive powers. As a federation, India is at this point way too centralized. Even at state level there's way too much powers vested in the hands of the State and way too less in the hands of panchayats and municipalities. Many municipalities are still practically run by the state government only.

On the other hand the idea that centralizing everything more and more will solve all problems, is a technocrat's (and I'll add, a Marxist's too) fantasy. Corruption will be there whether you centralize the decision-making or decentralize it. But what you destroy with centralization, is the people's ability to conquer corruption. You destroy the feedback mechanism. With decentralization, corruption is localized. The corrupt guy has only limited scope to do harm. When we centralize things, one person does something terrible and we all die. That's what happened under communism.

Perhaps using technology to efficiently share information between empowered stakeholders is what we could aim towards instead of using it to centralize authority.

---------- Forwarded message ---------
From: Baijayant 'Jay' Panda

Baijayant 'Jay' Panda

Should RBI be independent? A pushback is underway, globally, against the tenet of central bank independence

By Baijayant "Jay" Panda, The Times of India - December 18, 2018
Views Personal

With the Reserve Bank of India (RBI) seeing its third governor in just over two years, there is renewed debate about its independence. This is a debate worth having, but not on narrow partisan lines. Instead, it is instructive to examine central banking's history and its present day challenges.

Modern politics, governance and even economics often resonate with the dilemmas faced by nations millennia ago, with relevant lessons from the Roman republic, the Mauryan empire and the like. But central banking is different.

Central banks are a construct of modernity for which there is no specific ancient wisdom. The first one, formed exactly 350 years ago, was Sweden's Riksbank, followed by the Bank of England (1791). Both were joint stock companies, aiming to lend funds to and buy debt from government. Others soon followed, including in the US and France.

This was progress from an earlier era of large merchants financing the sovereign. For example, the famous Rothschild family not only financed European rulers, but also profited heavily from a continent-wide courier network and its ability to get information ahead of others on the latest developments in markets and battlefields. Read more

Baijayant 'Jay' Panda's former TOI opinion pieces