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The social 'trilemma'

June 03, 2006 15:33 IST

Economists are very good at rediscovering old truths and coming up with fancy names for them. One of these is the "trilemma", which says that with full capital convertibility, a central bank can either do something about interest rates or exchange rates, but not both. Hence, the trilemma, in which only two variables can be pursued at any one time; the third will, so to speak, get away and will have an exogenous, usually sub-optimal, value.

The notion that three variables or players or agents can cause instability is old as the hills. There are numerous examples of it, including the age-old romantic triangle. A less intuitively obvious one is about vendors. When there are three of them, they will constantly shift positions to maximise their domains. But with any other number they quickly settle down. You can see this for yourself in any market.

Likewise, the world has forgotten that in George Orwell's 1984 the world is divided into three groups--Oceania, Eurasia and Eastasia. The three are constantly at war with each other, with any two allying to fight the third. Or, there was a time when Europe had many triple alliances. They were all unstable or created unstable systems that eventually always led to war, including the worst of them, the First World War. I might add that the country that broke ranks most often was Italy.

The instability of solutions in 3-person games is also a standard result of game theory. All others, that is 2-person, 4 person, and up to n-person games, have dynamically stable, equilibrium solutions.

You can multiply these examples yourself. Here, suffice it for me to point out just one more destabilising effect of the number 3: Dashrath had three wives.

This long overture was necessary to show that if anyone--individual, group, community or state, anyone at all--has to reconcile the requirements of three players or groups or causes or whatever, the effort is bound to fail. Failure is inherent in the situation.

Now, in the reservations issue we are being asked to find a stable equilibrium point between justice to the backwards, equity for the forwards, and efficiency for the system as a whole. But try as you will it cannot be done. If you don't understand this impossibility, as most people don't, it makes you angry, regardless of whether you are a "backward" or "forward" or an SC/ST. Worse still, optimisation--settling for something less than the best--is upsetting in a purely intellectual way also.

So members of the Knowledge Commission have got antsy and leaked private letters to the Press. I think they are like babies who cry without knowing why they are doing so. This article, I hope, will act as much-needed Gripe Water for them.

Equity and justice are hard concepts at the best of times. But if you add efficiency to them, the problem becomes wholly intractable. This is what we need to appreciate in the context of reservations. One of the three has to give, or maybe be the anchor, or the environmental state, or the issue which is not negotiable.

But which should be given up--justice, equity or efficiency? Here is where the agony lies. The "backwards" want justice, the "forwards" want equity and the economy needs efficiency. And, tragically, the job of finding a solution is in the hands of persons least qualified to provide it, namely, the politicians.

This is because the ideas of justice as well as equity both pre-suppose at least some fleeting acquaintance with morality. But a moral politician is an oxymoron, as we have seen with the Left in the Office of Profit Bill's return by the President. The result is that we frequently turn to the Supreme Court for a solution.

But we forget that in the case of reservations, regardless of what the Court orders it will violate one of the three objectives. Thus, even excluding the creamy layer, as the Supreme Court wanted, does not solve the efficiency problem. As long as even one person is preferred on grounds other than merit, there will be a non-zero, non-negative diminution in efficiency. You may say this sacrifice is worth it. Perhaps it is. But it can add up over time to an unacceptably high level of inefficiency.

What then is the way out? The 3-problem can be solved in one way only: by making it a not-3 problem. This can be done either by adding one or more elements or subtracting one or more elements or agents or causes. Usually, countries subtract one when faced with a 3-problem.

Thus, China pursues only efficiency because without democracy--that too one based on identity politics--it can afford to do so. The US, too, regards efficiency as non-negotiable. But it also manages to create the illusion that it balances equity and justice between whites and non-whites, and between men and women. However, it is the worst-paid jobs that are held by non-whites and women, and in educational institutions there is a great deal of showcasing. Besides, the Afro-Americans make up only 12 per cent of the population, not over 75 per cent as in India.

So what next? I wish I knew.

T C A Srinivasa-Raghavan