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(Caution: Lengthy post) Suggestions for AAP / Notes to self

Democracy:

Democracy is one BIG area where Arvind and Anna have already given INVALUABLE lessons to the nation. This is the reason why I’ve been supporting them despite many differences!

However, since we have democracy on paper (although not in practice), a lot of people wrongly dislike democracy and hope for a ‘good’ dictator. On a scale of 1 to 10 (1 = dictatorship, 10 = democracy), India is roughly at 3. We can jump to around 8 by a couple of changes:

  1. massively decentralize power from central govt to state to district to the village / ward level. See Arvind Kejriwal’s short and sexy book Swaraj. (My only issue with this is he doesn’t go far enough  - power should be decentralized further to the individual level i.e. govt. should be involved only in national defense and law and order issues. That’s true freedom and self-governance!)
  2. change our first-past-the-post (FPTP) electoral system to list proportional representation (PR). (I am not sure if Yogendra Yadav, who understands the high entry barriers of FPTP, supports PR and has explained its massive advantages to Arvind)

Infact, any 1 of the above 2 steps can solve many of our ills.

PERSONAL AND ECONOMIC FREEDOM (Libertarianism):

Moral argument:

  • As citizens of a free democratic nation, we are free (and capable enough) to choose our PM and formulate our national policies. Hence, we atleast deserve (and are capable of) complete individual freedom. Freedom means the ability to do ANYTHING to my own person or property. We are also accountable in the sense that we cannot violate anybody else’s person or property or forcibly prevent him/her from doing anything.
  • At the very least, anybody who wants to restrict individual freedom (personal as well as economic) should be required to prove clear benefit to affected individuals.
  • See this VERY interesting Nolan Chart to quickly understand the left wing and right wing ideologies and understand how both restrict our freedom. (Ideologies have been twisted and abused by crooks for such a long time that most people believe all ideologies are bad. However, even when one doesn’t want to be wedded to a particular ideology, a very broad understanding helps in forming and communicating ideas to the masses.)
  • Hopefully, you’ll also understand why more and more Americans are becoming ‘libertarians’ i.e. asking for freedom. If there is one thing we can learn from America’s flawed democracy, its not the deceptive master orator Obama but the strong grassroot ‘freedom movement’ energized by the dashing 77 yr old Ron Paul . Thanks to social media, this movement is gaining followers across the world despite complete mainstream media blackout.
  • If you take the time to understand this with an open mind, you’ll become an expert in public policy/ politics and will be VERY addicted!
  • People and ethics are above the laws made by our rulers: Our current Constitution, our laws and our regulations have come from either the British rulers or from our esteemed politicians and bureaucrats. Our original Constitution has been considerably weakened over time by the Gandhis  by ~120 amendment bills each having many amendments. Similarly, we now know how our parliament makes laws and what kind of parliamentarians & bureaucrats we have had since independence. Yet, we have this strange and irrational belief that we have the best laws and we just need to follow/execute them. We have the most horrible laws. We’ve rightly started to keep some watch on new laws being passed but keep eulogizing the existing ones. Also, we have grown up thinking that every citizen should either follow the laws or get them changed but never violate any laws, even when they are contradictory and your competitors are violating them making you noncompetitive ! In reality, ethics and individual freedom are more important and the easiest way to get rid of bad laws is widespread violation (civil disobedience).

Economic argument for FREEDOM:

  • Capitalism is VERY GOOD. Most big corporates in India are not true capitalists…they are cronies since they thrive on govt favoritism and artificial monopolies / oligopolies cunningly created by govt. regulations. Capitalism means ZERO government interference (positive or negative) in any business, small or big. This ensures a level playing field – free market competition that benefits the customers, spreads profits among all efficient businesses and removes scope for govt corruption.
  • Capitalism doesn’t allow govt to bailout big business, forcibly acquire land, decide land use, pick favorites by licensing chosen corporates using arbitrary criteria or create monopolies by granting patents, etc.
  • Despite good intentions, most govt. policies hurt the poor. India’s civil society haven’t experienced true capitalism to understand that capitalism is the best friend of the poor. Take labour laws for example. When govt. makes it difficult to fire labour, businesses hire less labour by automating processes, by hiring labour on temporary contracts, by moving factories to places with easier regulation or by otherwise sidestepping /violating the law. Good guys that follow the law suffer and bad guys that violate the law progress. Similarly, minimum wage laws ensure that people with the least skills (usually the young and inexperienced poor who have studied in poor quality public schools) do not find jobs if their market value is lower than the minimum wage. Without minimum wage laws, these poor can alteast get a low paying job, acquire skills on the job and break the circle of poverty.  If the employers are forced to pay the high minimum wages, they will either automate things or hire only the better skilled workers.
  • Land use / zoning laws: To ‘protect agriculture’ and for ‘planned development’, our govt. restricts use of all our private property to either agricultural, residential or commercial uses. Land use change permissions are granted by bureaucrats on poorly defined criteria. As a result of this infungibility, agricultural land is extremely cheap compared to NA (non-agricultural) land. This one govt regulation has created ENORMOUS problems for the nation. If we completely remove this regulation, then:
  1. Value of agricultural land will increase substantially lifting numerous farmers out of poverty. They can use the land for something else or sell the land and change occupation. Many will continue farming but will be able to get cheaper loans from banks because of higher value of collateral. I bet farmer suicides will more than halve since they’ll have real freedom. (Allowing corporate farming, allowing farmers to sell their produce outside of mandis at market prices, removing all restrictions on new bank licenses, microfinance and NBFC companies, etc. are other measures that will eliminate farm poverty very swiftly)
  2. Value of residential and commercial land will decrease substantially reducing cost of business (making india competitive) and making affordable housing a reality. Wealth of existing homeowners will go down but it won’t  significantly impact a middle class person having just one house – he will get less money if he sells the house but he will also be able to buy the new house at a low price. Investors will take a one-time hit. (Removing restriction on FSI, removing most building regulations will also go a long way in increasing supply and reducing home prices.)
  3. Acquiring agricultural land at low prices (either directly or via govt. mandated acquisition) and reaping massive profits by converting land use is the standard modus operandi in almost every scam. This source of corruption will simply vanish because the price differential will narrow significantly.
  • Current constitution has no individual right to property ..no right to trade, business or profession. So, an Indian adult has been qualified enough since 65 yrs to choose the PM and decide the national policies, etc. but he is not mature enough to decide his personal things. eg: when a poor man decides to send his child to a paid private school inspite of having already paid (via taxes) for the public schools, we think the private school is looting the poor idiot and we require it to have a playground and fulfil so many other requirements that the poor man can no longer afford it. Its hard for us to draw the conclusion that the public school needs to be closed and the money returned to the poor via education vouchers or via low taxes/inflation. theWe ask looted by the If has to follow the thousands of rules laid down by our rulers to decide what to ear, what business to do, how to use his own land, what type of school to send his children to, etc.
  • Even original constitution has wrong ideas – centralization, encroaching on policy making, etc. The amendments (except the 73-74th amendments on Panchayati Raj) only

Govt. spending hurts the poor the most!!

  • First, understand that nothing is free. ALL govt. spending is equally paid for by the poor. How?

-  Indirect tax is paid by everyone – the poorest pay the highest as % of income since all their income goes on consumption.

-  Direct taxes (Income tax) – Incidence of tax is more on rich businessmen / corporate executives but the actual burden of tax is shared by everyone depending on price elasticity of demand. eg: Higher corporate income taxes generally mean a combination of higher prices for consumers, lower prices for suppliers, lower salaries for employees, lower profits for shareholders and lower spending or lower savings by the rich guys. It only means higher income for chartered accountants, auditors, lawyers, lobbyists, etc. who are hired by these corporates to evade taxes and to bribe the bureaucrats and politicians to create loopholes for them. This is also a big source of corruption!

-  Finally, when govt. spends money by borrowing or simply printing new money (yes, they do that a LOT! with RBI’s kind help), it hurts the poor the most in the form of inflation.

  • So, lower govt spending means lower taxes, lower govt borrowing and less money printing (and less scope for corruption)
  • I can GUARANTEE that if we simply cut govt spending in each category by 50%, then prices and corruption will actually DECREASE EVERY YEAR.
  • It will also not meaningfully reduce the money in the hands of the poor since most of the govt spending anyways doesn’t reach the poor (misdirected subsidies, corruption, bailout, bureaucrat and politician salaries, numerous other wastages, etc.)
  • Also, low govt restrictions = higher supply = more competition = falling prices, better quality and better services
  • We need smal
  • Decentralization (Swaraj) is sexy. By the same logic, extreme centralization (i.e. nationalization, public sector undertakings) is HORRIBLE. Government has no business to be in business. Remember our ancient wisdom:  जहाँ की सरकार हो व्यापारी वहां की जनता हो भिखारी (Jahaan ki sarkaar ho vyaapari, wahaan ki janta ho bhikar i.e. Where the govt is involved in business, the people are eventually force to beg!)

Strategy to push the govt to change things:

  • AAP should focus on contesting 20-25 of the 70 Delhi Assembly seats and try to win 8 to 12 of them so that neither BJP nor Congress can form the govt without its support. Then, support govt formation on the condition of immediately making some key changes as requested by us. [I don't think there is enough of a wave yet for it to win more than 15-20 seats. Ofcourse, depends on how much of these suggestions AAP really incorporates :)]
  • Where AAP expects less support, it should act as a political pressure group and campaign for the party that agrees to implement a key change or two BEFORE the elections (the change can be implemented either in the same state or another state)

Be different from other parties in a good way

  • ‘small govt’ ideology (see above)
  • kingmaker in legislature
  • kingmaker in weak seats
  • Transparent decision making process
  • Transparent Funding and expenditure

Candidate selection:

  • Sign a Right to recall agreement
  • IQ tests
  • physical fitness tests
  • candidates to annually declare assets of self and family and legally agree to anyone buying all or part of those assets at 1.5 times the declared value within 2 months of the declaration date
  • legally agree to donate undeclared assets to some credible charities
  • legally agree to donate any increase in assets greater than 20% CAGR while being in office (including 1 years before and 2 years after)

Internal party functioning:

Link

Taxation and how India (or any) govt. should spend

Total annual expenditure by all governments in India = ~ INR 25 lakh crores.

India’s population = ~125 crores

So, annual govt expenditure per capita = 20,000 INR!! This includes everyone from new born babies to very old people and very poor to ultra rich. For a family size of 5, this means 1 lakh INR per annum!!

Wonder why we still have so much poverty and what’s the best way to reduce it? Read on:

Different ways for govt to spend this money:

  • By way of numerous central schemes and decide what people should get and what not – the way it does now. Horrible corruption, wastage and market distortions. Leads to wealth concentration in the hands of top few % of people. Limited trickle down.
  • Give money to the village or ward level govt. controlled by the local general body. Let them decide what they want to do with the money. This is Arvind Kejriwal’s GREAT IDEA (Swaraj) and key agenda! I think this will solve majority of problems!
  • Give cash directly to individuals. No questions asked. If you can identify the rich, then don’t give them. This is even better than Arvind’s idea! (Note: Congress’s cash transfer program is different since the cash transfer there will be subject to conditions. eg: if you can prove you bought a LPG cylinder, then you will get some cash subsidy. Many of these conditions will be stupid and proving compliance will require bribes. If they can remove these conditions, then this is great!)
  • Finally, the best way to spend this money is NOT TO EARN it!! Let me explain.

Govt. gets money in 3 broad ways:

  • direct and indirect taxes
  • borrowing – also a form of taxation since it increases cost of capital for everyone in the country and requires future generations to pay more taxes
  • money printing – causes inflation which is also a  form of taxation (most people say this is the worst form of taxation though i think this is the most efficient)

So, all money that govt. gets is by taxing the people.

Now, a lot of people wrongly believe that most taxes are paid by the rich people. Well, borrowing and money printing (2nd and 3rd bullets above) equally affect the rich and the poor. Indirect taxes are also paid equally by the rich and the poor.

Direct taxes are PAID more by the rich but the burden of taxation is not on the person paying the taxes. When a business pays taxes, those taxes are borne by the investors, suppliers, employees and customers of the business depending on the elasticity of demand i.e. the bargaining power of each group. A business can pass on some of the taxes to its employees by reducing the no. of people it hires or by reducing salaries. It can pass on some to the customers by increasing the price or reducing the quality of goods. Even when the business takes the hit by way of lower after-tax profit, it reduces spending and investment by the business owners leading to less jobs.

In a nutshell, it is impossible to determine who is contributing how much to the govt. In absolute nos., the rich contribute more but in terms of % of total income or wealth or expenditure or quality of life, the poor contribute more.

So, less taxation means not only less wastage and corruption by govt but also significantly lower prices for goods and services and more employment opportunities for everyone. 

While I prefer the last of the 4 approaches, I atleast hope that our govts. follow more of the 4th, 3rd and 2nd approaches, in that order!

(another big reason for India’s poverty are unnecessary govt regulations and public sector enterprises that promote corruption, wastages and distort the free market)

Political funding reform

Some thoughts on reforms on funding of political parties. These are lower order reforms.

(The key is to curtail:

  1. the need for funds by changing the electoral system from FPTP to proportional representation.
  2. the willingness to spend by considerably reducing discretionary powers and privileges of elected reps)

These rules should also apply to political NGOs (eg: pressure groups like India Against Corruption).

1. Limit cash receipts to 10% of total receipts:

Existing rules allow political parties to receive unlimited anonymous cash donations (each donation not exceeding Rs. 20,000). No wonder, using this loophole, each party annually receives anonymous/small cash donations running into crores! Cash donations should be limited to a particular %, say 10%, of total receipts. This will limit non-transparent funding while continuing to allow even poor people to give to their preferred political party.

2. Eliminate tax deductions for political donations:

Present laws treat political parties as ‘charitable organizations’ – donors get a 100% deduction u/s 80GGC (donors to most charitable organizations only get 50% deduction).

  • However, politics is no charity (even if you work honestly). Elected representatives are paid (though, to attract honest talent, pay should increase substantially and perqs need to be abolished) and other politicians do no charity. So, there is no rationale for diverting taxpayer money by giving 80G/ 80GGC deductions to donors particularly when many taxpayers are opposed to many political parties.
  • Such deductions encourage fake donations to manage tax and also promote black money eg: ‘A’ donates (by cheque) to a political party, receives a tax benefit and then gets back the money through cash or other means.
  • If state funding of political parties is considered desirable, then there should be a well-thought direct mechanism  instead of indirect funding like tax deductions, free media space, etc. We should atleast know how much we are funding and to whom.

Separately, we should continue the current practice of NOT taxing political parties for receipt of donations (receipt of donations is not ‘profit’ and taxing receipts will either discourage well-intentioned individual donations or encourage those to be done in an unaccounted way).

3. Transparency: Timely updated websites of political parties should carry, in addition to detailed audited accounts,  names and details of all donors (other than 10% mentioned above) in a way (excel sheet) that enables analysis by any person. Donors above, say, 50K should also quote PAN. Parties should give this info to the Income Tax department just like Banks, NBFCs do (Annual Information Return?). Election commission should have powers and resources to investigate complaints of unaccounted expenses/income.

I invite suggestions and brickbats.

 

Proportional representation – the answer to India’s problems

A lot of people rightly blame India’s major problems on bad politics but why is politics bad in India despite 65 years of independence and democracy?

I blame it on India’s first-past-the-post (FPTP) electoral system that elects its MLAs and Lok Sabha MPs. Its one of the worst electoral systems and a Proportional representation (PR) system can substantially improve our politics and overall well-being over time! Let me explain:

How does PR work?

PR has many variations and I like the closed party list single district PR system.

Lets consider Lok Sabha elections – Every party that contests elections will pre-declare its ranked list of candidates. The whole of India will be one single constituency and every voter across the country will vote for any one party (not a party member) or an independent candidate.

  • If Congress wins 20% of the votes across India, it will get ~20% i.e. ~108 out of 543 seats in Lok Sabha. The top 108 names from Congress’ list will become the Congress MPs in Lok Sabha
  • If a small party wins ~ 0.36% of overall votes, then the first two MPs on its declared list will go to Lok Sabha.
  • An independent needs to win 0.18% (1 / 543) of the total votes across India (actually, lower than that will also do since he might get the benefit of rounding up). For this, he can woo either voters of a particular locality or particular ideology/profession/ caste/religion or any other interest group or any combination of these.

Similarly, in State assembly elections, every voter will vote for 1 party, not a party member.

Why PR?

Duverger’s law: FPTP’s high entry barriers always lead to an uncompetitive 2 party system! (Indian parliament has so many parties only because the smaller parties are among the top 2 parties in their state/region)

Politicians/political parties supply governance services and we consume these services. High entry barriers limit the no. of suppliers and, more importantly, prevent competition and creative destruction i.e. displacement of old suppliers by new suppliers. Result? Poor service and high price for the consumers.

PR breaks this cartel by lowering entry barriers.

How does PR lower entry barriers / help?

PR reduces the role of money, muscle and votebanks in elections !!

FPTP is a ‘winner-takes-all’ system. Suppose each of the top 2 or 3 candidates in a constituency expect ~20-25% of the vote and want ~5-10% more votes to ensure victory. They (and their parties) will do whatever it takes (money, muscle, divide and rule identity politics, booth capturing, etc.) to get the 5-10% ‘swing’ vote since that is the difference between winning (100% power) and losing (0% power).

PR drastically reduces the value of the marginal or the ‘swing’ vote. A vote-share move from 25% to 30% moves the seat share just by 5%. This is very fair and also makes it unprofitable/meaningless to do ‘whatever it takes’ particularly since only some people fall for these tactics.

To get absolute power, a party needs 40-50% vote share across the nation. Even under FPTP, Congress gets less than 30% votes. Since PR eliminates tactical voting (see below), parties like Congress and BJP might just get 15-25% unless they improve. They will not get the kind of massive funding they get now since their ability to provide a good ‘return’ on this funding will be limited.

PR drastically reduces tactical voting and increases voter turnout by eliminating wasted votes

‘Good’ or ‘clean’ or ‘professional’ candidates/parties fail bitterly and routinely complain that people either don’t care to vote or vote for the big parties (for money/liquor, etc.). While these factors are true for a section of the voters, there is a good chunk of voters who don’t vote since they know that that these new ‘clean’ guys have little chance of being the 1st in the constituency. Even those who vote, tactically vote for the ‘lesser evil’ among the 2 main parties to ward off the ‘bigger evil’. eg: Majority of Muslims are believed to vote for Congress. While some may actually like Congress, a substantial no. actually do so to keep the BJP away.

PR allows people to simply vote for a ‘good’ party/candidate without worrying about how many others will vote for them or which party will come 1st or 2nd. eg: If a particular Muslim is wary of a ‘communal’ BJP, then instead of voting for ‘corrupt’ Congress, he can vote for a small party that is neither communal nor corrupt (if he believes that this small party will oppose BJP’s communal agenda and protect Muslims, when needed).

PR significantly lowers the electoral threshold

FPTP has very high electoral threshold for new parties and people –  win 35-40% votes in a geographical constituency. Winning 35% requires much higher support since many of your supporters won’t vote or will vote tactically (see above).  Under PR, the threshold is 0.13 – 0.18% votes across India.

Under FPTP, even when a third party succeeds, as we’ve seen in some Indian states, the quality of governance doesn’t change since the new party, to get the high funding and to meet the high electoral threshold, has to substantially compromise its ethics on its way up. Once there, to ‘payback ‘their financiers, they join the cartel. In the immortal words of the Joker in The Dark KnightWe become the evil we fight!

PR allows new people/parties to compete with and gradually replace the old without becoming like them. This keeps the existing parties on their toes and forces them to behave.

PR encourages inner-party democracy

FPTP  forces ‘good’ candidates/leaders to stick to big parties (and toe the party high-command line) since many people do not vote for independents/ new/ small parties.

Under PR, party high-commands remain important but competition makes them accountable since it is easier both for voters and leaders to dump bad parties. To retain power, parties will have to democratize, promote popular leaders and govern well. Opposition parties will have to support good policies to remain relevant.

(In either systems, we should abolish the anti-defection law that centralizes power)

PR will reduce regionalism. FPTP encourages the Thackerays to badmouth the North Indians!

Under FPTP, a new party with 8-10% popular support might get only 2-3% votes (as people avoid ‘wasting’ their vote on likely losers) and 0% seats UNLESS their supporters are concentrated in one region. Any wonder all new parties in India are regional?

PR allows parties to campaign on broader issues. People can vote on any lines they prefer – anti-corruption or decentralization or libertarianism, etc., …even on region or religion or caste. PR just levels the playing field.

 

Other PR benefits

  • PR reduces the need for women or SC/ST quota/reservation by giving them better representation. eg:  Sweden’s surge in women’s representation in 1994 followed a threat by major women’s leaders to form a new women’s party if more women weren’t nominated — a threat only credible because of PR. In Germany, in 1994 women won 39 percent of national seats elected by PR, but only 13 percent of FPTP based district elections
  • MAY not need voter registration…any person with any proof of residency in India (or the concerned state) can vote at any polling station (ink mark will prevent double voting)!! Higher voter turnout!
  • Eliminates pre-poll alliances and other tactical considerations allowing parties to focus on winning votes
  • Every vote has equal value. In FPTP, a voter in a constituency with higher population has lesser power to influence the outcome
  • In FPTP, approx 60-65% votes in every constituency go to losing candidates and are ‘wasted’. In PR, almost every vote counts encouraging more people to vote. Its also democratic in the sense that a party with X% votes gets approx. X% seats.
  • Eliminates gerrymandering i.e. manipulating constituency boundaries to favor a political party
  • Lack of  formal allocation of constituency to MP gives one more reason to abolish the non-sensical MP/MLA funds

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Common arguments against PR and their rebuttal:

Lack of one-to-one MP-constituency link removes direct accountability:

This is a major concern for many people. In my view, while a MP is not assigned a particular geographical area, he has to be accountable to the people who voted for him (or his party) as long as the voters have enough choice to switch parties (which is the essence of PR). Under FPTP, since the big parties are hard to dislodge, MPs are loyal more to their parties. They can continue winning in their constituency as long as the party and a section of the voters in that constituency like them.

Also, in PR, the voters of an area can still vote for and elect someone from their area as an independent MP. They can also vote for a party that does good work in their area or has fielded candidates from that area. These MPs/parties will obviously know where they get their support from and will have to serve them.

Finally, if people still insist on a MP-voter constituency link, then mixed member PR is a good option. Its my second preference (it’s a somewhat complicated system).

Coalitions slow legislative and executive activity:

Firstly, PR doesn’t necessarily mean more coalitions/fragmentation. It means better chances for new parties to replace bad ones. Secondly, activity is different from progress. Many people, including me, prefer limited government and strongly believe that majority of the legislative and executive activity since Independence has actually harmed India. Finally, legislative and executive activity suffers only if big parties co-operate neither with each other nor with smaller parties. This happens even today since one party rarely achieves a majority. The only key difference under PR is that lower entry barriers and more competition will force all parties to behave responsibly.

Further, irrespective of the electoral system, good Lok Sabha functioning needs Parliamentary reforms. eg:

  1. MPs should select the most acceptable PM using preferential voting (Condorcet winner or IRV method) instead of the top parties first competing for the (generally biased) President’s invitation and then trying to convince a majority of MPs.
  2. To ensure stability of govt. and continuity of parliament, a PM once chosen should stay for 5 years unless >50/55% of MPs agree on another guy. Just agreeing to remove the current PM should not be enough. This single step will ensure stability.
  3. Every party should fully control parliament time in proportion to its strength in the houses instead of continuously fighting for what matter to discuss under what rule. BJP can discuss and ask for voting on ANY issue in its allocated time but if they disrupt time allocated to Congress, then Congress can take the help of security to require shouting members to leave. In Parliament, MPs should discuss and vote. To protest, they should go to the people.
  4. If we indeed want SPEEDY legislative and/or executive action i.e. a decisive governmentthen simply give the PM ~5% extra votes in Parliament instead of just 1 vote.

PR makes parties too powerful (since the party determines candidate ranking on their list) and PR makes parties too weak (by encouraging party fragmentation)

Both can’t be true and I believe the reality is somewhere in between: PR, via more competition, makes parties accountable. In other words, good parties will gradually strengthen and bad parties will weaken.

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Which parties support PR in India

The Left parties (not a good sign!) and JP Narayan of Loksatta party (considered as one of the most honest and able politicians in India) have long been advocates of PR system.

How to get PR

  • PR needs Parliament / CG approval (likely doesn’t need constitutional amendment).  Parliament should allow 1 or 2 states to use PR or allow all States to experiment. May the best of the many systems win!
  • Congress, BJP resistance to PR, particularly at the State level, will decrease as they lose Top 2 positions in more (big) states. Already so in Tamil Nadu, Bihar, UP, Bengal, etc.. FPTP is kind only to the biggies.
  • PR is gaining ground globally. We can verify some of above claims by looking at global experience. Slightly difficult since many other factors at play. eg: US prospered despite FPTP because of its sexy Constitution limiting govt power and protecting individual rights. US is now weakening and will struggle since, over the years, politicians and judges have diluted the Constitution. Also, politicians often defeat the very purpose of PR by having various customization like high electoral thresholds (i.e. allotting seats only to parties with more than, say, 5%, of the total votes), giving extra seats to the largest party like Greece does, etc.. This forces people to shun new/small parties :(

Let me end this long post with this very instructive quote ostensibly from Encyclopaedia Britannica: “The case for PR is fundamentally the same as that for representative democracy.  Only if an assembly represents the full diversity of opinion within a nation can its decisions be regarded as the decisions of the nation itself.”

Other readings on PR:

http://www.thirdworldtraveler.com/Political/CaseForPropRep.html

http://aceproject.org/ace-en/topics/es/esy/esy_nz

http://www.proportional-representation.org/

http://en.wikipedia.org/wiki/Electoral_reform_in_New_Zealand

http://www.fairvote.org/fair-voting-proportional-representation#.UOcjsG9lJME

Radical idea – Abolish all taxes and print money!

The Constitution should prohibit all taxation, govt. debt and allow government to finance itself by regular money printing. Limit the money printing to an annualized 10% of GDP/money supply – some thought needs to go on deciding this limit…but should be a STRICT LOW limit. (socialists won’t like this idea since this is only compatible with a small govt.)

This can totally eliminate the HUGE wasteful effort that goes into levy, collection, calculation, evasion and payment of taxes. Not all spending or GDP is desirable…digging holes and re-filling them add to GDP but is clearly a waste…so, govt. should only do/encourage activities that help its citizens / improve life in some way.

Let’s be clear – just like income tax is a tax on income, printing money is a tax on cash holdings, bank deposits, bond holdings or any asset with fixed dollar value.

Printing money will result in inflation (a form of tax) that will be partially offset by continuous deflation caused by increased productivity. Assuming inflation remains within control, nominal interest rates also won’t rise too much.

IMPACT of high inflation rates/interest rates if the money printing limit is too liberal i.e. if we allow, say, 20% money printing to enable a welfare state:

  • people will shun cash and use debit cards for payment
  • currency might gradually depreciate vs. foreign currencies (if foreign govts are not printing as much as us)
  • people will not just HOLD physical assets / other currencies but also try to TRANSACT using barter/other currencies
  • high inflation will cause inconvenience by requiring frequent price changes
  • high nominal interest rates might hurt businesses?

Net net, sounds like a good idea to me. Thoughts?

p.s.

  • closing down the tax industry will massively affect employment (only in the short run though)…but, to be fair to people employed there, they need to be adequately compensated so that they can spend time and money on acquiring new skills. EASIER SAID THAN DONE
  • money printing is happening even now under the garb of monetary policy….the biggest advantage of this proposal is it will bring  everything in black and white and limit the scope for bad behavior by politicians/bureaucrats/corporates
  • Asset sales/leasing of assets/advertisement income, etc. are other possible sources of govt. revenue but I prefer a small govt with very few assets and little participation in commercial activities

Good electoral system?

India follows the ‘first past the post’ (FPTP) electoral system and I believe simply moving to Proportional representation (PR) can substantially improve our overall well-being over a period of time!

To examine this rather tall claim, let us first agree on the objectives of a good electoral system. No system is perfect but a good system should try to achieve more of the below features (lets focus on Lok Sabha – India’s lower house of parliament – for this exercise):

  1. Free market: attract talent to politics by ensuring minimum barriers to political entry (monetary and other barriers). Higher supply of talented people will increase competition and voter-choice, hurt the poor politicians and force them to improve.
  2. Democracy: elect a legislature that reflects people’s preferences as much as possible – In a democracy, if a party has support of x% voters in India, then, irrespective of whether the voters are extremists or illiterates or idiots, that party should have roughly x% seats in Lok Sabha so that everyone gets a say even when the majority has its way. (Parliamentary reforms i.e. good rules of govt. formation and Lok Sabha functioning should ensure, to the extent possible, that parties have decision making power in proportion to their seats. Parliamentary reforms should/can also ensure other things like govt. stability, ability to make decisions, effective opposition, etc. Will talk about these in a separate post).
  3. Individual rights: Our Constitution protects (or is meant to protect) the life, liberty and other rights of all Indians by limiting the rights of the State. A good electoral system should give us a govt. / legislature that is most likely to honor the constitutional guarantees.
  4. Accountability: Reward outperformers and punish underperformers such that political parties and elected reps (MPs) are accountable to people and have incentive to work (their work is mainly to enact [and implement] laws that are ‘good’ and reflect the will of the people – if people demand laws that a politician/party genuinely believes are bad, then its tough – the party has to first convince the people to change their demands or take the risk of going agst their demands or going agst its beliefs or step aside).
  5. Inexpensive and easy to understand & implement

This is just a placeholder. Please suggest additions or changes to these features. I’ll update them as appropriate.

State funding of elections is a bad idea!

I continue to completely reject State funding of elections despite the fact that, IF done right, it can attract talent to politics by somewhat lowering the high entry barriers imposed by our first-past-the-post electoral system.

(NOTE: To substantially reduce the ‘need’ for state funding and for other massive benefits, we NEED to change our electoral system from FPTP to proportional representation).

Summary:

State funding can make politics a profitable (or less loss-making) profession even for honest people. Currently, honest politics is very high risk-very low reward and that keeps our best minds away. The argument is that if we can change this, we can gradually change India!

Details:

2 broad issues with campaign finance:

  1. Honest youngsters are unable to choose politics as a profession since winning an election requires immense time, effort, talent AND money. Even if they win, the cash remuneration is not great (though we waste a lot of money on rent-free bungalows and other perks to MPs).
  2. As a result, only very rich/connected/dishonest people compete in elections. This also means that, once elected, they indulge in corruption to recover the ‘investment’. Honest people can join politics only after they have made enough money in some other profession.

If we can fund the election campaign of ‘serious’ candidates, our politics will attract some talent making politics more competitive (also forcing all politicians to shape up).

How to fund elections?

Post elections, all candidates who receive atleast 5% votes (to discourage non-serious candidates) should be reimbursed a fixed sum per vote, say Rs. 20 per vote. It can also be dependent on % of votes received. eg: No payment for the first 5%, Rs 15 per vote for the next 5%, Rs 20 per vote for 10-20%, Rs 25 per vote thereafter. To limit costs, there can be a upper limit to reimbursement per candidate. The per vote funding may be reduced for candidates who have been funded before or those who have been elected before. Will also need tax exemption for income from state funding :)

How will this help?

  • Consider a honest, patriotic, intelligent and hardworking youth making a career choice. State funding will make it easier for him to join politics.  Politics need to attract talented people, not just crooks. Even if one loses an election or two, he can improve and fight as long as he gets 5% votes.
  • People get to vote for honest people, hopefully, leading to higher voter turnout.
  • Reasonable spending by all serious candidates will ensure a well-informed electorate somewhat reducing the advantage to the guy spending obscene amounts of money

Limitations/negatives of state funding:

  • Like all govt intervention, a harmful version of state funding (see ‘Bad Ideas’ below) is and will be eventually implemented. This is enough reason to oppose it.
  • Costs money! Assume 3 elections in 5 years, 50 crore Indians vote per election, Rs. 20 per vote. Max cost is 3000 crores per 5 years. Not very high IF this can change things.
  • Honest people will be able to compete but may still not win since money will continue to play an important role in elections and given FPTP’s high entry barriers. The massive amounts currently spent on most election campaigns will only increase since state funding will be available to all.
  • Votes splitting amongst higher no. of ‘clean’ candidates in 1 constituency might allow the big guys to win with an even smaller vote share! The power of vote-banks will increase giving politicians more incentive to polarize votes on the basis of caste, religion and similar issues!
  • Some increase in ”paid news’ since elections will become a bigger market for media
  • The ‘price’ of election tickets for established parties will increase further.
  • To manage costs, the state can only fund candidates who poll a certain minimum % of votes. A poor candidate will still need to risk electoral failure leading to unpaid debt.

Beware of BAD IDEAS on state funding of elections:

  • Fund all candidates or all ‘new’ candidates – this will attract too many non-serious candidates
  • Fund only state / national political parties or only existing representatives – it discourages independents, smaller parties and new faces who need the funding the most
  • Let the taxpayer choose (via his return of income or otherwise) which candidate will receive his share of the total state funds – the problem is poor people (who pay indirect taxes but do not pay income tax) won’t get to choose …if they do, there will be serious admin/ cost issues in collecting and updating this ‘fund allocation’ opinion from the public. Finally, who will fund my campaign to persuade voters to allocate funds to me?
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