Post Demonetization: 'Rationale Lies In Its Irrationality,To Shock And Awe'

NEW DELHI: The failure of demonetization to achieve its main purported objective, despite causing acute hardship to the people at large, cannot be attributed to the fact that the thought behind it was based on assumptions which happened to be proved wrong. Since the wrongness of these assumptions was quite well-known from the very beginning, the inescapable conclusion which emerges is that its failure was because little thought went into the action itself.

Many I am sure will contest this. In fact I have come across arguments on the Left that suggest that while demonetization obviously did not achieve its stated objective, its real objective was quite different and it has met that objective quite admirably.

There is some difference of opinion, however, on what exactly that real objective was. Some would say that the decimation of petty production which neo-liberalism brings about was hastened by demonetization, which was therefore a bold stroke, accentuating a tendency already present. This to my mind does not carry conviction for two reasons.

First, demonetization’s accentuating this tendency in this manner is like dropping a bomb on the petty production sector and this is scarcely the manner of its decimation that big capital in India would like. It would rather prefer the more silent and imperceptible mode of killing the petty production sector through the “operation of the market”.

Secondly, there is also a more directly economic argument why big capital would not like killng the petty production sector through demonetization. Capitalism’s interest in decimating the petty production sector lies in its desire to supplant it. But a mode of decimation of the petty production sector that also causes a crisis for the entire capitalist sector by precipitating a recession can scarcely be to its liking. But this is precisely what demonetization is doing, which can scarcely therefore be seen as a masterstroke for advancing big capitalist interests.

A second line of thought sees demonetization as advancing the interests of international companies promoting digitized payments, or as succumbing to U.S. government pressure to promote cashless transactions. Even if one were to accept all such suggestions, they cannot individually or jointly explain the demonetization of as much as 86 percent of the country’s currency, which is quite unparalleled anywhere in the world in recent times.

The explanation for at least the extent of this draconian measure, if not for the measure itself, must therefore be found elsewhere, namely, in my view, the sheer thoughtlessness on the part of the central government that lay behind this measure.

Such thoughtless action is precisely a hallmark of fascism which, as Umberto Eco has pointed out, believes that thought is “emasculating”. It believes in the sanctity of action per se. And if this action is to impress people, or more accurately shock and awe them, rather than being merely incremental, which is what action informed by thought often tends to be, then it must be “irrational” in the sense of going beyond the bounds of reason.

Taking decisions which appear to be optimal, through a maximization of some objective function subject to certain constraints, which is what rational behaviour is supposed to entail, prevents such bold action that is meant to shock and awe. It is informed with thought, and hence a sign of “emasculation”. The real hallmark of “leadership” is that it takes action that inspires shock and awe, rather than being confined within the bounds of “rationality”.

Demonetizing at one stroke of as much as 86 percent of the country’s currency constitutes such action. Announcing the measure a mere four hours before the notes cease to be legal tender, which causes massive distress and appears “irrational”, becomes explicable when we see it as part of the tactics to shock and awe. If demonetization is announced weeks in advance, then, even if it has the same effect on the black economy as a demonetization announced with only four hours’ notice, it ceases to have the same dramatic character.

It is not by chance that spokesmen of the ruling Party and government have kept harping on the theme that there has not been any leader of the country who has shown such boldness as Modi has. The point, even according to them in other words, is not whether he has succeeded in what he set out to do; the point is simply his sheer boldness in making the move. Trying to find a rational explanation for the draconian demonetization, it follows, is to miss the point of it. Its rationale consists precisely in its irrationality, in its capacity to shock and awe. And from this point of view, the inconvenience caused to the public, far from being a limitation of the measure, becomes its strength, an index of its boldness, though of course it may not be specifically intended to occur. “Shock and awe” does not by any means diminish if it also happens to cause hardship; on the contrary hardship heightens its effect.

A remarkable inversion of perspective is involved here. The essence of democracy is that political interventions should mitigate the distress of the people and that this should be ensured through the empowerment of the people. The people in short are the ones for whom the system is supposed to work and the quality of leadership is to be judged by the degree to which this objective is achieved.

We now however have a situation where the leader occupies centre-stage; he seeks to become the cynosure of all eyes and the people’s role is reduced to one of being dazzled by him, of applauding him, even when what he does becomes a cause of distress for them.

In fact they are supposed to applaud him all the more loudly, the greater is their own distress. And the reason advanced for this is a simple one: if a leader imposes sacrifices upon the people, then it must be, it is suggested, for achieving some higher good. The greater is the sacrifice, the greater therefore must be the leader’s commitment to the achievement of this higher good, his single-minded dedication to its pursuit. The greater is this sacrifice, the more deserving, it follows, he must be of applause.

In other words, once the presumption that the leader may be wrong is removed (and when his action is on a scale large enough to produce shock and awe, any judgement on whether he is right or wrong becomes that much more difficult to pronounce precisely because of this shock and awe, and hence the discussion goes beyond the discourse of right and wrong), the distress of the people becomes an occasion for applauding the leader; and greater distress becomes an occasion for greater applause. A shift of focus thus comes about, from the people to the leader; an inversion of perspective occurs on the relative importance of the people and the leader, which entails not just a practical but a conceptual attenuation of democracy.

This conceptual attenuation has a dynamic of its own. If the professed goal of some particular shock-and-awe-inspiring measure is not achieved, then that becomes an occasion for undertaking even more shock-and-awe-inspiring measures.

If the black economy has not been hurt by one particular shock-and-awe- inspiring measure, then to maintain his very credibility, as a courageous leader committed single-mindedly to the pursuit of this higher good of eliminating the black economy, the leader undertakes even further shock-and-awe-inspiring measures.

A return to anything like “normalcy” becomes impossible under these circumstances since any such return would entail accepting that the leader has got defeated in his “crusade” against black money. And since even these further measures are arrived at without thought, for thought is supposed to be “emasculating”, they lead to even further hardships for the people, and even further dislocation of the economy from which again the people suffer.

Thus thoughtless actions undertaken to showcase the qualities of the leader have an inbuilt tendency to keep cumulating, thus accentuating the process of practical and conceptual attenuation of democracy.

This tendency on the part of the Modi government to cumulate shock-and-awe measures is already evident. It is evident in the shift of argument by the government regarding the objective of demonetization: the projection of a cashless economy, which is now supposed to become the means for realizing the vision of a black-money-less economy, is indicative of further shock-and-awe measures.

Likewise the news appearing every now and then about how the government is planning to tax every transaction above a certain limit is another such indicator.

Why a cashless economy should be ushered in at all is not clear in the first place. The standard argument is that it would eliminate unrecorded transactions; even assuming this to be the case, the fact that it would expose people to cyber-crimes, with which even our legal system is currently not adequately equipped to deal, has to be reckoned with.

Likewise the invasion of privacy, the snooping by government agencies, including foreign government agencies, into private lives of the people, also raise serious questions about the desirability of a cashless economy. Even if on balance a shift to a cashless economy is to be preferred, the fact remains that we do not yet have the digital connectivity and the digital literacy to make such a shift possible in the foreseeable future.

And yet, the government has already announced that it would not replace all demonetized notes with new notes of an identical value, thus, by its own admission, forcing the people towards a cashless economy.

This deliberate shortage of notes would prolong the recession that is setting in, dealing a permanent blow to the informal or petty production sector; it would cause immense hardships for the people on an enduring basis, and not just for a transitional period.

This itself is bad enough; in addition however, it constitutes an assault on the people’s rights. Cash transactions are costless transactions, while digital transactions necessarily involve a cost. No matter how many sops are offered in the short run by the government to reduce or eliminate these costs just to make the shift attractive, digital transactions do naturally extract a cost, since the companies through whom such transactions are effected are not dispensing charity; they are there to make profits.

The government through its insistence upon cashlessness in other words, which is manifest in its decision to withdraw notes on a permanent basis, is forcing people to move from costless transactions to transactions that entail a cost, i.e. transactions for which they have to shell out a part of their incomes to financial companies that specialize in selling digitized transactions. This is a direct assault on the people’s rights, a forced levy upon them for the benefit of certain financial companies. This is totally unacceptable in a democracy. But having embarked upon shock and awe measures, the government is proceeding further along that path and compounding the people’s distress, driven by the dynamics discussed earlier.

(This is an extract from the Annual Lecture given by Prof Prabhat Patnaik for the Centre for Policy Analysis.)