TUESDAY 18 MARCH 2008 NEW DELHI OPINION 11 Business Standard Stay updated through the day. Visit www.business-standard.com BusinessStandard VOLUME XIV NUMBER 287 ures” but with different ends. Social- ists wish to promote equality, classical liberals liberty. Classical liberals es- Denting confidence again chew socialists’ egalitarianism because (as Nozick demonstrated) “equality” conflicts with “liberty”. As he wrote: he rapid developments last week inflationary spiral. While the Fed has cut “The socialist society would have to for- that saw Bear Stearns being acquired its benchmark federal funds rate by 125 bid capitalist acts between consenting Tby JP Morgan Chase, with the sub- basis points this year, with expectations adults” (Anarchy, State and Utopia, stantial backing of the US Federal Re- of another 50 basis point cut, the preva- p. 163). Fourth, egalitarianism as a moral serve at a rock-bottom price of $2 per lent inflationary situation makes cuts be- belief is part of the cosmological beliefs of the monotheistic religions, and not share, has opened up a new level of un- yond that point less and less likely. The part of those set of moral beliefs, in- certainty about the scope and impact of question is whether a federal funds rate cluding Hinduism, which accept what the financial crisis in the US. Notwith- of 2.5 per cent will be enough to stimu- Louis Dumont called Homo Hierar- standing the repeatedly expressed con- late the financial system into getting lend- chicus (see my Unintended Conse- cerns about “moral hazard” emanating ing going again. Remember that the rate quences). Fifth, socialism is a mod- from the bail-out of teetering financial in- had declined to 1 per cent during the pre- ern instrument of control of the Preda- stitutions, both the Bank of England (with vious cycle when, of course, inflation was tory State. This last point needs some elab- Northern Rock Bank) and the US Federal nowhere amongst the perceived threats. oration. It is now well recognised that Reserve (with Bear Stearns) have obvi- If not, the risks of financial institutions of the suppression of political and civil ously decided that discretion is the better various kinds continuing to fail remain, liberty was an essential part of the part of valour and bankrupt institutions and the Fed and other central banks Illustration by BINAY SINHA Communist version of socialism. But pose a more immediate threat than future will have to either let them fail or sur- it is equally true in a different form of moral hazard. Of course, the Fed’s sup- reptitiously stoke the inflationary flames the softer variety of social democra- port mainly provides a temporary flow of by the kind of crisis management seen in Socialism and liberty cy. Fabian socialists have always been in favour of the Nanny State, because liquidity to meet immediate obligations the Bear Stearns rescue. as Douglas Jay memorably stated, while new sources of funds are found. A major problem in this situation is “The gentlemen in Whitehall know While the immediate objective of pre- that nobody knows the extent of vul- The suppression of political and civil liberty is an essential best” what is in the housewife’s in- venting the institution from going un- nerability of the major financial play- terest. This strand of socialism has der has been achieved, markets around ers. While commercial banks are regu- part of socialism of various kinds, says DEEPAK LAL now taken a new lease of life in Eng- the world are now even more worried lated closely and their risks are visible, land, with many socialist thinkers ad- about the vulnerability of other institu- other financial institutions have a great he public interest litigation (PIL) so many of her actions, appearances Revealingly, the Chief Justice in dis- vocating State interference in the pre- tions. As the guessing game about who deal of flexibility in managing their port- filed by an NGO challenging could be deceptive, as the Left soon missing the petition to delete “social- viously protected private sphere on the 1976 insertion of “social- found out with her declaration of the ism” from the Preamble, stated: “Why the grounds of aiding the virtuous half might be next intensifies, the ability folios. This is as it should be, from a busi- ism” in the Preamble of the Con- Emergency in 1975. (Raj Thapar’s do you take socialism in a narrow sense of a postulated divided individual self. and willingness of central banks to con- ness viewpoint, but it makes a crisis more T stitution, and the 1989 amendment of excellent memoirs provide a vivid ac- defined by the Communists? In a broad- In support, using Mill’s arguments tinue to rescue floundering institutions difficult to manage. Just as the previous the Representation of the People Act count of the raising and dashing of these er sense, socialism means welfare meas- against slavery (in On Liberty), they must also be questioned. The dilemma crisis provoked the Global Settlement, making it incumbent for political par- socialist hopes.) The 42nd Amendment, ures for the citizens. It is a facet of claim that he would not have object- posed by the choice between a calibrat- which mandated a separation between ties to pledge allegiance to socialism, passed during the Emergency, was part- democracy. It hasn’t got any definite ed to this form of paternalism in the ed approach to monetary policy and equity research and business activity brought back many mixed memories. ly window dressing, to appease the dis- meaning. It gets different meaning in private sphere as going against his the almost knee-jerk responsiveness to by the investment banks, this one could In 1973, I spent a year at the Plan- illusioned Left and a potential instru- different times.” This raises a num- principle of liberty. This of course is ning Commission helping Lovraj Ku- ment to thwart her political opponents ber of points. a complete travesty of Mill, who ex- financial distress, as demonstrated in the result in stronger disclosure and risk man- mar set up a Project Appraisal Division. — a purpose achieved by her succes- First, words do matter. If a word has plicitly discussed and dismissed sim- Northern Rock and Bear Stearns episodes, agement norms for the sector. Macro-eco- At the time I was a child of my Indi- sors with the 1989 amendment’s re- no definite meaning it has no place ilar paternalistic arguments against is striking. nomic management is a difficult enough an background and education in the quirement for every political party to in a Constitution. Second, socialism the use of alcohol and opium (see An unending infusion of liquidity into job in the best of times. It is being made PPE school at Oxford: a social demo- swear allegiance to socialism. does have a meaning. All the various FT.com for Feb-Mar 2007 for an ar- the system, which is what would result even more complicated by the relative- crat, a Keynesian and a believer in plan- The Supreme Court has rightly al- socialist sects share a belief in egali- ticle by Amartya Sen, my letter in from large-scale bail-outs, enhances ly opaque regime in which many of the ning (albeit through the price mecha- lowed this 1989 amendment to be chal- tarianism. The major difference be- response and subsequent letters on the inflation risk, which the Fed and key players in the current crisis oper- nism). That year turned out to be a form- lenged by the PIL, which claims it is “a tween the Communist and Fabian ver- the smoking ban in England). ative year: making me question both grave breach of the liberty provision of sions is that, the former seeks to pro- This new social paternalism is a con- other central banks are quite acutely con- ate. To the extent that more transparen- my previous assumptions about the the Constitution”. But, its summary re- mote egalitarianism by socialising tinuing attempt by socialist thinkers to scious of. Oil prices are at around $110 cy brings about greater alignment be- benevolence and public spiritedness of jection of the plea to declare that so- the means of production, the latter amalgamate notions of “negative” and per barrel and other commodities, in- tween macro-economic and financial sec- bureaucrats and politicians, and the cialism is not part of the “basic struc- by seeking to socialise the results of “positive” freedom. As noted in an ear- cluding major food items, are also in an tor stability, it must be pursued. very intellectual basis for planning and ture” of the Constitution has prevent- production. Third, there is an alter- lier column (“Freedom versus Liberty”, government intervention. ed it from discussing the relationship native set of political beliefs, classical August, 2004), this arises from the am- It was also a formative year for between socialism and liberty, which liberalism, which promotes liberty but biguity in the word “freedom”, which India. After her “Garibi Hatao” election Dr Ambedkar, the father of the Con- eschews egalitarianism. It, however, as it implies not having obstacles placed Five years later and victory in the Bangladesh war, stitution, saw clearly in opposing the accepts the need for the State to help in the way of individual actions, allows Indira Gandhi turned leftwards, pro- inclusion of “socialism” in the Pre- the deserving poor and to finance mer- confounding being free to do something resident Bush must be one of the the issue, the domestic political bat- moting the policies advocated by many amble. He said: “If you state in the Con- it goods like health and education for with being able to do it.