Ep 15: Open borders, free trade! | Ajay Shah on autarky, globalisation, and pragmatism

My guest today is Ajay Shah, one of India's most prominent economists. Across the last three decades, he's held leadership and teaching positions in some of India's top institutions. This includes places like the Center for Monitoring Indian Economy, the Indra Gandhi Institute for Development Research, the National Institute of Public Finance and Policy, Jindal Global University and Pune International Center. He worked closely with the DEA at the Ministry of Finance in the early 2000s and currently runs XKDR, a think tank that he co-founded. Ajay believes that global free trade is good and state autarky or self-reliance is a bad idea. "Borders," he says, "should be relatively open and there should be low levels of control on people, goods, services and capital moving across borders." In 2025, this position has once again become a radical idea and I hope you enjoy listening to us, Disigree. Hi, Ajay, welcome to the podcast. Thank you for having me. I wanted to do this for such a long time and here I am. Likewise, for the listener, I do not want to take words out of your mouth. So usually ask the guest to draw the boundary conditions, what are you defending? So who's Ajay Shah and I think this is something that I cover in the introduction most people who know you at least in my listener base and how do you come to believe in this belief and what is the belief that you have? The belief I want to put up here for conversation is that it is not correct to have the state impose barriers at the boundary between two countries. That in essentially everything, the boundaries of a nation should be irrelevant. That the boundary between West Bengal and East Bengal should be as irrelevant as a boundary between Telangana and Andhra Pradesh. That everything should move freely, people should move freely, capital should move freely, good should move freely, services should move freely and so on. That is something that I feel deeply about and it's like slowly over the years I've come to understand that it is very hard to find a case for state interference at the border. And of course, you know that's not at all how the world works. The world is filled with barriers to trade, non-tariff barriers, barriers to services, capital controls, immigration controls. So you name it any aspect. The border is very special that East Bengal, West Bengal is profoundly different from the boundary between Bengal and Behar. Yeah. So it's not at all the description of the world, but this is my proposition that we would make a better world if the state would not believe that it is wise and optimal to interfere at the border. Yeah. The world for this that you shared with me which I hadn't heard of before we spoke was the word 'aught' talking. And so I looked up the history of the world. What's the etymology where this is the word come from? I don't know if you know this, but it's really interesting. When I was younger, I used to be a big on stoic philosophy and a diogeness who was an early stoic, did was one of the founders of the cynic movement is the person who used the word 'aught' talking for the first time in a political sense and effectively means self-reliance and he was talking about it with respect to himself in that he has to be a self-reliant person, stand on one's two legs, so to speak, to be 'aught' talking, right? And that's the usage. And I was thinking about how a lot of classic liberals have this sense of that we are our own person and by and large we must stand on our own feet, right? We don't want the state to interfere in welfare, we don't want them to do lots of things that are in the left's mind something that the state will actively participate in the market in. And isn't that a strange contradiction where a liberal would say something like 'each person must stand on their two feet' but as a country whatever that means whatever the phrase as a country means as a country you must not stand on your own two feet. You have to actively trade across borders, be open to goods and services from people in other countries. Now, I know what the answer is to this because I've thought about it as a liberal but I'd love for you to articulate it for our listener, right? Why are these two different things? Why do we promote autarchy with the individual but at a state level we say no we don't want it to be autotic? I think the words mean somewhat different things. In an economics and public policy context the state of autarchy is one where the government has used the coercive power of the state to cut off activities across the border. So that's the sense of the word 'daren'. So I didn't know this backstory to the word and I get that it is a little contradictory here. Yeah, right? It's very interesting. And I think it also ends up meaning different things. So in one case you're saying self-reliance and absolute autonomy to oneself versus when the state imposes barriers it is the removal of autonomy from lots of individuals. Then let me say this in a liberal way that my dream world is one where you and I are free to transit. Right? My freedom you are freedom and if it so happens that the boundary of two countries lies between you and me right now nothing should change. That it should be you and me with the freedom to engage with each other to choose that we should be free to choose whether or not there's a boundary between us. Amit Verma has said something in a very sweet and simple way once I was saying that trade international trade does not happen between countries. So we anthropomorphize a country when we say that India exports. No, India does not export. Indians export. It is individuals that export. It is firms that export and Amit says it very nicely. He says that it is my decision to buy ball bearings from somebody in Surat versus my decision to buy ball bearings from somebody in Mozambique. It's my decision. It's my call. I get on the phone. I chat with the person. I discuss the technical characteristics of those ball bearings. I discuss delivery delays, cost of transportation and so on. And then I choose that I like the ball bearings from Mozambique. Now who the hell is some government to tell me no, I will not allow you to bring ball bearings from Mozambique or I will charge you some money if you dare make the mistake of bringing ball bearings from Mozambique. And I'm like, who are you? How dare you interfere in my God given sovereign right to myself? It is myself that is being attacked when you say that you are allowed to buy ball bearings from Surat. You are allowed to buy ball bearings from Nagpur. But if you buy ball bearings from Mozambique then government of India gets a say in that decision and gets to impose restrictions that seems unfree to me. I love it. This is the segue to one of the lines that I wanted to bring up with you to try and poke a hole in the argument. But I wanted to conclude the previous segment with a small story from the world of Diogenes that you may not have heard of. It's just a funny aside. To prove how autocratic they were, a lot of the cynics would bark at people as opposed to speak to them to make the case that they refuse to use Greek the language of choice, but rather would speak like dogs in evidence of the fact that they were true autonomous individuals. I thought this was hilarious as a complete aside. Now you said something like who is the state to come between two free people making a voluntary transaction. The fact that there's a border in between is irrelevant to the larger fact of freedom. I own my body, you own your body from this flow is the right to self ownership, private property, practically every negative right that we have. And in exercising that right nobody must come between us, at least of all the state. I would love to try and understand why we define the state like this or why the classic liberal defines the state like this. So I'm going to hand the ball back to you because you may be the best person to define this. But what is the state and what is the responsibility of the state that is what does the state do and more importantly what are the bucket of things that you think the state must never. Max Weber defines the state as the community that achieves and maintains the monopoly of violence on a given territory. So not keywords, not institutions, community. How that community chooses to organize itself to work by rules and by predictable institutional mechanisms is the second stage question. So arguably emperor Orang Zab had established the state. Now it may not have had rule of law. It may have been entirely capricious. That's a separate debate. The point is a monopoly of violence was established. So it's a community that establishes and maintains a monopoly of violence in a given territory. So the state says I have the right to inflict violence upon you, but nobody else does. Right. Okay. Over a given territory. That's it. That's a definition of the state. And why is the state worth having because if we do it correctly. So a state can become just a venal dictatorship of harming the subjects that it manages to obtain. That is perfectly possible just because you have a state. It's not a good thing. So I do not come from a goody, goody view that the state is always good or many times people make the mistake of saying that if a certain country has a state, then we will always accord democratic legitimacy and respect and all the good things to that state. I'm perfectly comfortable thinking that the Chinese Communist Party that rules China is a completely evil construct. I must be given no respect or trust because it's actually just a violent gang that controls its subjects. So legitimacy is a separate story. Amit Varma and I have an answer. EIE episode on state legitimacy. It's a very interesting and different concept compared to the state. Maxwell defines the state as a monopoly on violence. Why is that a good thing? Because then it rules out violence from our interpersonal relationships, which is again the liberal idea that you and me should engage in voluntary transactions. Your activities, my activities with each other should be strictly voluntary. We are free. We should do whatever we want. All acts between consenting adults that are voluntary are good. Nobody else should come into that and interfere or criticize or have an opinion on what we are doing. But we should be free. Now, how do you achieve that freedom? A key requirement of that is to rule out physical violence. So, you should not be able to inflict violence on me. You should not be able to threaten violence against me. I should not be able to threaten violence against you. I should not be able to inflict violence against you. Why is that good? Because then after that, we are truly equals in doing a negotiation. And then we can decide. We can talk with each other. We can decide what we'd like to do together. We're fully free. Okay. So, the reason why we want a state which monopolizes violence, it's a way of saying we're taking the instrument of violence away from everybody else. Which is the stepping stone for being consenting adults. So, to get to the dream of freedom of agency of consent, we need the state to rule out violence. Okay. If I threaten you with violence, you don't have agency. You're operating out of fear. If there is no violence in the picture, then you are a free agent. And you will do whatever you like. I can say whatever I want. It is your bloody birthright to say yes, to say no, whatever you want. And that is the desirable world. It's a world of freedom, agency and consent. And in order to get to that, we need the state. Now, it would be good and valuable when the state imposes low level of violence upon the people. When the state cares about the preferences of the people, when the state tries to achieve welfare for the people, that's a desirable form of government. So, these are the steps of the logic that first you want a state because you want people to be free. Now, that state can be horrible. It can be Putin's Russia. It can be the Chinese Communist Party. So, you ain't done. Then what we want is something better. We want a state where it cares about the preferences of the people, which may or may not happen, where it tries to increase the welfare of the people, which may or may not happen. So, that's a desirable state. So, this is I think the pieces of the story that we should keep in our mind about around definitions of the state and why we want the state. Right. Forgive the digression. There's a little bit further away from the autarpie question. If we believe that each person starts with his right to self ownership and then can end up in a free contract, that you and I can contract and nobody should come in our way. Why not contract our way to security? That is, there are many things that we are not delegating to the state. Why not also not delegate violence to the state and instead say that, so in a more anarchic world, what we would say is that the ability to protect my own body is something I arrive at by contracts. So, the private market would solve for security and there would be private militias and I would contract with that militia in some way either through labor money, private property or something of the sort, including defense of my private property and my body. And I've tried to understand, why would you prefer a word where we've given them an apply violence to the state? Because the problem of personal safety and the elimination of violence has a public good character. When you actually try to do it, it's very cheap and effective to do it once and for all, that we get an Indian military, we get an Indian military, we get an Indian foreign office and it consumes 2.5% of GDP, these two put together, consume 2.5% of GDP and then if things go right, we are fully done with all threats of military conquest at the border and that's cheap, that's low cost. Whereas, if you had a large number of militias, if you had many men with guns, then it's actually quite expensive. Similarly, think of a police force, think of a criminal justice system, a criminal justice system is made of laws, lawyers, judges, police, public prosecutors and jails. Now, think of this entire edifice being built by the state, by charging us taxes, it's cheaper than having militias. Finally, if you have multiple competing rival militias within a territory, what's to say that the militia will not turn upon the people. So, how do you achieve high levels of protection for the people? This, by the way, links up to what I have said earlier that a good state is one, which imposes low levels of violence upon its own people. Meaning, I'm not so naive as to believe that when the state achieves and maintains a monopoly of violence in a given territory, it will not turn the guns upon its own people. Okay, if you live in Putin's Russia, if you live in China, you have a high level of interpersonal violence by the state as a community against everybody else, which is a yucky place to be. But if you think of a militia solution, I'm reminded of the role of militias as seen in the American Constitution. Then you will have many militias in the country and you will have many, many foreign policies where these militias will make side deals upon each other. There could then be a lot of violence between militias against each other, militias against the people and the overall cost to society will likely be higher. So, I think that you could get a modern state done for very little money. Here's the number I want to put up that in 1913, Britannica ruled the waves. They ran the UK, ran the greatest empire in the world. The sun never set on the British Empire and all of this was done for 10% of GDP. So, it's not very expensive to get public goods done. So, these are the kind of reasons why it's better to go down the state. Words like rule of law can be attached to the state because violence is a horrible thing. Look, there will be some violence in society. So, if you have a criminal justice system, you will catch some people who are alleged to have committed a crime. You will have type 1 and type 2 errors and the state will inflict violence upon such people. Now, there you want it all tied down on the rule of law. Mirror militias will be monstrous. So, for all these reasons, we like to have a concept of a liberal democracy with state legitimacy, with a state that is responsive to the wishes of the people where there is rule of law and it is also cheap. So, you don't spend a lot of money. In the only part of the podcast, I tend to just lay out definitions, get everyone to understand us. Absolutely essential. The sounds to me like, if I was to make a very simple philosophical distinction between somebody using utility as the place that they want to go with their philosophy or using some deontological position in terms of what they want to abide by. Saying something like living in Putin's Russia is yucky. Feels like a utility statement. In that, you're saying that it's such low levels of welfare. Well-being for you for me is low. We have low freedoms. We consider things you want to say. A lot of life is nasty, brutal, short. When you live in that. You're constantly vulnerable to the violence of the state. So, you sleep at night wondering about the knock on the door at Predon, where there's a Predon raid against you, where a state personnel can show up at your house and vandalize your house and destroy your life, destroy your family, inflict physical violence upon you and your family members. That is the horror of living in a country where the state is capable of violence against you. Absolutely. If I was to take a deontological position, something like liberty is absolutely my north star to help with the consequences. But liberty is in and of itself the one true good. Then there's a way for me to arrive at a world where I have the liberty to contract my way to Malaysia. When I talk to folks who are very strong in their liberal beliefs, both in the economy and in social life, but also stand for a strong state. The word strong means something like a state that does rule of law really well, that has police, a standing army. That's sort of a state. What we are saying is something like there is a utility argument baked in. It's not just the deontological position that I love liberty, but in this specific way, I'm willing to reenquish some liberty for most security so that some of these utility outcomes are accomplished. At heart, I'm a very pragmatic person. I think human life, human society is messy business and they will often not be clean solutions. So, I'm not absolutist. But most things, I'm always willing to argue about them. I'm always willing to find middle roads. I promise you a couple of times today. I am going to slip up from my initial position and say, "Actually, okay fine. If a state is going to impose this barrier upon that thing, maybe I'll learn to live with it." Okay, so I don't view things in a absolutist way. I view things in a pragmatic way. I've tried to give you a pragmatic argument that the Malaysia solution is a messy one. So, I'm not coming at it from a philosophy that liver. is the first principle, I want the most freedom, the most agency, the most consent that we can master. At the lowest cost, because ultimately, when a government charges taxes, it reduces my freedom, right? In an ideal world, mine come is 100, my power to spend is 100, that's my freedom, that's my envelope of freedom. When the government takes away 39 as it does in India for personal income tax and then another 18 for a GST and then another 10 for a customs duty, okay? All this is eating a by liberty because then I'm left with less money to spend. So resources is a consideration. So getting the public goods of eliminating violence from society at a low cost is a nice outcome to aim for and I don't want to be mechanical and say that just because you have a state, it's done, okay? In Saudi Arabia, you have a state but it's a terrible state which is freely fully ready to inflict violence upon its own people. So just because you're a state, I'm not reverential at all. I'm not happy that somebody calls yourself a state. What is good and desirable is a state that charges less money, that delivers high levels of lived experience of freedom to the people that is responsive to the people that practices rule of law, that cares about the welfare of its people. So basically you're down to liberal democracies with a low tax GDP ratio, that's the kind of happy outcome that we should get to and why is all that good because then it creates conditions for freedom, agency, consent. I understand. And then the other question I asked earlier which I want to sort of just double click on is what should the state do and more importantly what should the state never do in this sort of a conception of a state? So the state should do that establishment of the monopoly of violence on a larger position. I accept that there are many things that are market failures where pure freedom delivers your bad outcome. Can you give me an example of that? So a nice example of that is the air quality over North India. It's an absolutely terrible state of affairs where losing millions of years of lifespan of the people of the North. And this is not a problem that private contracting can readily solve. And it is valuable to have a state which will basically put up 1 million drones in the air, see every fire, immediately swoop down there, get human police there, give tickets to the people burning fires, shut off all burning by the people of India. Okay. Now that's tough. It's difficult but it's got to be done and I think it will add value to the world if you do that. So that's an example of a public good. So public goods are things that are non-rival and non-excludable. Yeah. Think of a smallpox elimination. Only the state could have eliminated smallpox or you would need contracting on the scale of a population which is tantamount to a state-sized problem. So if you had to eliminate polio from the world, only the state can do it. If you had to eliminate smallpox from the world, only the state could do it. Note, I do not believe that you needed the state for COVID-19. Okay. So COVID vaccines never got to the extermination of COVID from the earth. Then there I believe a private solution would have worked perfectly that you needed government money for the research on COVID vaccines. Why? Because knowledge has a characteristics of a public good that it's non-rival, non-excludable. Get the research done, publish the papers, publish the patterns. Then the free market will produce infinite amount of the vaccine at zero cost and then let markets and buyers figure out what they want to do. You don't need a bureaucratic design and implementation of how everybody in India will get vaccinated. I felt that in India was serious state overreach. So the United States did a great job of NIH funding to develop research on COVID vaccines and apart from that the private sector would have done everything. So these are notions of where a state would be useful. So I'm not saying that I believe that the state is only required for establishing a monopoly of violence. Using that monopoly of violence, you can do some other good things, some amount of public goods. This doesn't mean that every single market failure requires state intervention. It does require all of us to continuously be skeptical about state power that the state can often get things wrong. Under the excuse of addressing a market failure, a state can just do reckless intervention into society. So I do not, okay, so let's flip it around. Where is state intervention wrong? I believe all state intervention is wrong when A, it's not doing market failure or B, it is failing on trying to address market failure. Meaning performance is an issue. I am not just happy to say, oh yeah, there's a market failure. So state is okay. Now you should do it. That's theory. It should actually map to practice. So what is my list of criticism of what the state is doing? Rule one, if you're not addressing a market failure, get out of here and rule two, it should actually work. It should actually succeed. It should get a valuable gain to welfare at low cost, at low coercive reductions of freedom. You should trade off very little freedom, very little coercion should take place in return for a lot. So all in all, I believe that taking away the freedom of people in North India to light a fire is a very good deal. It's a good trade off. I would accept that level of state coercion in return for cleaning the air of North India. I understood. Very interesting. One of the things that bugs me about solutions, which are messy like this, right? Now privately believe all solutions are these sort of messy solutions, is that you end up on gradients as opposed to black and white places. And those gradients are always spaces where we lobby. And we disagree. It's healthy and correct. I think Lyndon B. Johnson said that if two people agree on everything I know only one is doing all the thinking. So it is healthy and proper for us to disagree. It's your birthright to think no, no, no, no, no, no. Like a drone in the sky watching for a fire that's creepy, that's a fucking surveillance state. That is not okay. It is your birthright to believe that and we should keep on arguing. Yeah, I believe in what you said so much that I named a podcast after it. And I'm going to do a second argument that ties to this and then come back to it. Okay. Now one of the things that most classic liberal types believe is that harm is a good reason for the state to intervene. When we're able to show that harm is taking place. So even with the air pollution argument, one could argue that this is clearly harm. I have a more technical version of it, which is market failure. Right. I ask for you. I consider the word harm as emanating in certain legal philosophies. And so if I was writing a law, I might use words like harm, but I don't consider it core to how I think what is core to how I think is market failure. So watch. It is possible for a person to be envious. Yes. And there is such a thing. Okay. So now this envious person sees the neighbor having an ice cream and feels wounded and you could apply words like harm that your conspicuous consumption caused me harm. And then I would say even if it did co-fuck yourself. Correct. Absolutely. Okay. Because harm is not a test. So only be cautious about the word harm. I like the technical boundaries of the words market failure. If you wish I'm happy to drill down and define market failure completely. Let's do that. The economists have done a great job over 150 years. The economists have chiseled the precision of the doctrine around the words market failure. So I feel sure footed when I use the words market failure. That is where freedom is indeed failing. And there is a case to consider whether a successful state intervention can be constructed through which everybody is made better off while nobody is being hurt. I would think as a leement that a market failure is premised on harm. That is you are showing that explicitly harm is taking place. All market failure has harm but not all. Not all. It has a market failure. I'm just worrying about the words harm. As I said, I feel the word market failure is precise. So we have 150 years of an economics literature. Let me run through it. So freedom normally works well. Okay. So chapter one of Kaelkar and Shah says that freedom is good. Okay. That generally freedom works very well. Yeah. And if you just leave people unto themselves. Okay. Capitalism is what people do when you don't tell them what to do. Okay. Lots of good things come out of that. So action one is that freedom is pretty good. But sometimes freedom works badly. And we have a precise categorization of the four ways in which things can go wrong. And in each of these ways, there is a way for state intervention to use coercion directly or to spend money. Now, government money is born off coercion. So the government coercion forces us to force us to pay taxes and then the government spends money. And so spending money by the state is equally a coercive act. Yes. Because the money could not have been created without coercion. Money in the hands of the government is tainted with coercion. So there are four categories of the situations where there is said to be market failure. One, public goods. I already talked about public goods. Yeah. Public goods are defined as things that are non-rival and non-excludable, non-rival. My breathing and fresh air in no way diminishes your access to fresh air. Okay. It's really an infinite resource. Safety. We talked about public safety. My consuming public safety in no way diminishes the amount of public safety available for you. And so that fits the word non-rival. Non-excludable. It is not even in principle possible to exclude a newborn child from the beauty of that public good. Okay, so it could be clean air, it could be public safety. When a child is born instantly, that child is benefiting from clean air, from public safety. Okay, so these things are called public goods. Public goods are hard to produce privately, because who will pay for something where the benefits of it accrue to everybody? This is sort of the militias problem. If I pay for a militia and you pay for a militia and we all pay for the militias, then there is the danger that a next person will free right thing. I'll pay for no militia, because all the other militias have worked to stamp out the violence in the society. Okay, so you get this free rider problem and so wherever things are non-excludable, it's difficult to find a private business. Yes. How will you find a private company that will clean the air of North India? Okay, because why would I pay them to do it? And then if you will not pay them, how will they get the money to do it? So that's a public goods problem. The second category is called externalities. So it is I smoke cigarettes and you get a cancer. Okay, you did not voluntarily consent to it, but I'm impinging on you. This is a negative externality. My smoking behavior will tend to overproduce smoke, which is bad for you because I don't care about your welfare. Flip it around positive externalities. I have gathered knowledge all my life and I'm a mad person. I have freely gifted away all my knowledge to every victim that I can lay my hands on. Okay, if you make the mistake of meeting me, I will try to give you everything that I know. Yeah. And I'm just imposing positive externalities upon the world. Now that's not priced, meaning I don't get paid for all the knowledge that I give other people. And so I will tend to underinvest in my own knowledge, we each of us tend to underinvest in knowledge. Consider research on COVID-19. Once that paper is put on a website, it's a positive externality for the whole world. Even if you didn't sign a contract with that researcher, suddenly you get that knowledge and you can go start a factory and you can build that vaccine. So how will you generate sufficient investments in the things that have positive externalities? How will you prevent the overproduction of things that have negative externalities? Consider the loudspeakers that destroy the life of all the cities of India. Okay? Somebody's playing loudspeakers and spoiling my peace of mind. It's a negative externality. How do you address that? It's very hard to find private contracts to solve that. And that's a market failure because it was never negotiated with me. If it given me a chance, I would have never accepted the loudspeakers. Okay, that's the second case, which is externalities. The third problem is asymmetric information. I go to a shop, I buy a medicine. It is unreasonable to expect that transaction to take place as freedom and consent because I don't know the purity of that medicine. And it's an unreasonable level of effort for me to buy 10 strips and send five strips to labs to get them tested. And then if they are satisfied, my problem, then I will consume the other medicines or consider restaurant, food safety, consider the US FDA, the Indian FSSAI. These are interventions that just reduce asymmetric information, banking regulation. You want grandmothers and dentists to put their money in a bank and largely not pay attention. You don't want to have to everybody thinking about every transaction because it's an unreasonable burden of knowledge and information processing. You want something to just work dumbly. And that's the problem of asymmetric information. It forced us more transactions. Do you feel this way about terms and conditions documents? That's a little more legal approach where the, imagine, I purchased a strip of medicines and it came with a terms and conditions document. So then if the medicine proved to be poison, then I would sue based on terms and conditions documents. Then I'm on a different point. Interesting. OK, fair enough. I feel like I'm digressing a lot because there's so many interesting questions about official. And you can go to four. And the fourth and last is market power. It is that sometimes in society you get monopolies and that's not efficient. And if the state can use its coercive power to create greater conditions of competition, that can add value. So these are the four categories of market failure. And I don't want to imply that if there is a market failure, there is always a need for state intervention. That's a state capability battle that under your world conditions of political economy and public choice theory will the state set out to wage war against a market failure and actually deliver an acceptable trade off of progress on addressing the market failure while expanding low amounts of coercive resources and not having too many unintended consequences. That's the box of state capability. But this is an intricate. If you don't have a market failure, you surely have a case for no state intervention. This is an necessary condition. Yeah. Yeah. Super interesting. OK. I have rarely spent this much time at the startup podcast, not talking about the actual subject but going to definitions. I think I have so many questions for each of those that I would love to pick up on all of that. But I'm not going to digress and get to the actual topic. So I know this is really useful foundation. I'm going to 100% come back to a lot of these definitions. I read No Trade is Free earlier this year. One's Trump was reelected. One of my principal arguments in my private life, my concerns with Trump was just a lot of what he was the rhetoric around trade. And so I said, OK, I'm going to try and figure out what that position is and lighter seemed like somebody who had written quite extensively about this. Is this a NY Times article? No, he wrote a book. I didn't know that. I read the NY Times article. So I think Amit and I used that NY Times article a lot. I listened. In the EIA episode is Globalization Doke. Yeah, I listened to the podcast on this as well. So I remember reading it then. I listened to your podcast after I read the book. And so it's very useful to hear what the counter's well. Now, the broad argument seems to be something like the project of globalization has failed. Because one, not all actors in this project are liberal democracies behaving like Europe for the United States. That was part number one. And part number two was some pitfalls with either GAT or the WTO, but just how these entities were structured, how they resolved disputes, all of those things. So maybe my first question here is, do you feel like this idea to globalize? What is the identity like the WTO? Now, if you remember your premise, you said, look, you live across the border. I live across the border. We simply freely trade. But the way it's manifested in the real world is we have countries who all stood up and said, look, we guard all the borders. Now we're going to create an entity that is a centralized entity. Those have terms and conditions. And I don't know if the WTO comprises this definition of free trade. Because it still wasn't like in the regime under the WTO, even I could trade across the border. So do you feel like that was even the right formula for what you're talking about? Was that free trade? So we have to go back a little into history. First came David Ricardo and the concepts of gains from trade. And there was a glorious period in the UK where trade policy was just openness. It was unconditional unilateral openness. Let other people do whatever they want. We will be open in our country. There was a happy period. Always broke down in the first world war and in the great depression. And out of the ashes of the second world war, the good people of the world led by John Maynard Keynes and Harry Dexter started thinking, how could you do this differently? They thought that it is too easy to attack free trade in toxic domestic politics. So in domestic politics, if workers in India are losing their jobs while workers in another country are getting protectionism, then it is too easy for demagoguery for people to throw stones and then create protectionism off their own. And then the whole world collapses into protectionism. So that was the experience of the great depression. And I, for an I, lives a whole world blind. And we saw that in the great depression. So they thought that could we ring fence freedom by tying it into some international treaties where all countries promise that we will be open that could then improve the political support for free trade. OK, so that was their proposition. Yes. That we run a lower risk of the large scale collapse of free trade that happened in the great depression if we are able to enter into multilateral trade treaty. And that was the GATT, which was created after the second world war, which morphed into the WTO. By and large, that experiment was a failure. By its very design and ambition, it excluded agriculture and services. It was largely focused on manufacturing. The developing countries were always subused with left philosophy. So even though India and China were the greatest beneficiaries of the global trading system, the Indian government and the intellectual capacity in India on these questions was always ceaselessly sniping away at free trade. So India was a spoiler in every trade negotiation. India always wanted more protectionism and they worked to disrupt the global order. So that whole experience did not work very well. Most importantly, a whole bunch of countries found legal loopholes in the WTO process through which trade subsidies and trade barriers were introduced in a way that was compatible or unenforceable in the world of the WTO. The biggest exponent of this was China, where the coercive power of the Communist Party, the lack of democracy in China, was used to suppress household consumption and create very cheap exports, which fed back to the power of the Chinese state. And China was so big that it became difficult for the rest of the world to deal with that, that it literally became that for country after country, the Chinese Communist Party could destroy the local economy. So, it is indeed a new stage in the global problem of free trade. And I get that there is a unique and different problem here. So, you would have heard in the EIE is globalization, Doom Depisode. I do agree that the good countries of the world need to get together and change course. Where step one, we need a new WTO type treaty, where good countries agree with each other, that we will do deep, deep globalization. We will just remove every bloody barrier, that it would not be possible for a government in India to say data localization, to force data centers to be located in India, to use regulation to interfere with foreign banks operating in India. All the misbehavior of the Indian state should be noted down and catalogued and blocked in a future treaty. So, first is you need a core of sensible countries that come together and draft a DTA, a deep trade agreement, where you really removed all the trade barriers. And then make it an open access thing, where any country can join, but you have to agree to all these classes. So, it becomes like a new multilateral free trade arrangement. And then in that world, it should become possible to punish a bad actor like China. China is a real problem for globalization. And you are starting to see I'm not being a doctor in air, that you should always be unconditionally open. Ila Patnaik and I wrote an article in the business standard, where for the first time in my whole life, I actually said that, you know, this isn't working and we should have trade barriers against many, many kinds of things coming in from China. So, I've never said that before in my whole life, but I recognize that China is a singular moment. I think last week there's an article in the Financial Times, which is saying something like, China is making it impossible to trade, which is sort of the same idea that we're a large country, which is just following such a large swath of government policies that just make it impossible to arrive at any kind of meaningful free exchange with China, with Chinese companies and Chinese persons. And I get that there is some truth in what Robert Lighthizer wrote and I disagree with him on many things. I certainly disagree with Donald Trump's trade policy on everything. But I get the China as a unique moment and it calls for unique countermeasures, but that does not take away the basic message and sanity of a good global free trade agreement, arrangement. So the weird thing in the world today is that the biggest economy in the world, the United States has craziness and trade policy led by Donald Trump. The second biggest economy in the world China is the world's biggest exponent of trade barriers. Okay, fine, we're stuck. Okay, we are in a bad place and we are stuck. Okay, but everybody else is very big. Okay, if you take Europe and the rest of OECD and ideally if good sense will prevail in India, it adds up to a very big free trade zone and it can become a very effective way to proceed. For gentle listeners, I would refer them to an article, Ajay Routu, Idle Patnayk on 24 June, 24 called the case for trade barriers against Chinese imports. This is the one that he's talking about. I hope to bring it up later in the podcast. But he makes the case for, and this is so typical of Ajay, for this one specific nation at this one specific time for a very short period, it is okay to have some sort of trade barriers. And here I want to just go right back to that first philosophy question. There is a Chinese man selling nuts and bolts. I'm a Chinese man. I mean, Indian manufacturing plant purchasing nuts and bolts. What is the case? Let's say China is the example, right? Doesn't this violate that idea that he is a free individual? I'm a free individual. We trade across the border. And that freedom has been deeply attenuated by the Chinese government. The Chinese government has done 50 things that are actually messing with that transaction and are spoiling the nature of freedom and consent and agency in that transaction. So that's what's wrong. That the Chinese state has done 50 things under the hood that are distorting that transaction. So you should not think of it as really a free transaction between two people. The liberal would think that when such disruptions or interference in the market takes place by the state, one that is usually good for those benefiting. That is, if the Chinese government wants to subsidize somebody in China to sell to me fantastic because I'm getting the good or service at a lower rate, right? So that's a good thing. And two, it's not tenable. So at some point, 15 years, 20 years from today or six months from now, this will fall apart because this central planning mindset knowing which industry is going to be large and next is the things that a large state simply cannot hold up for long period of time. So why not simply allow them to fail or take benefits of the fact that you have access to cheap goods? I think we should worry about this unique situation at two levels. The first is that because China is so big, when these kinds of policies are followed there, it can lead to large-scale job loss in other countries and can undermine political support for globalization as well. So in a way, we lost the United States because of China. If China and India had played fair in globalization all along, then I believe you may not have had the rise of Donald Trump. So to some extent, we create huge political problems all over the world when countries like China and India misbehave on their asymmetric behavior towards the world of trade, that the Indian state wants free access for Indian firms into global markets, but is not willing to give comparable free access for foreign companies seeking to sell into India. And China, of course, is a much bigger economy than India. It's five-axis size of India. The second problem is that there are economies of scale in many industries, and this is a problem noted by Paul Krugman many, many years ago in the development of the so-called new trade theory, where the idea is that when a government will support steel production inside China, the economies of scale, so the government uses coercion to grab money from the people of China. State of a state of suppression of consumption of the households of China, the likes of which would never be tolerated in any liberal democracy. Okay? So it is unique to China being a police state that they're able to suppress the consumption of the people of China. And they use that money to subsidize five big steel companies in China. Then one by one, it kills off every other steel company in the world. Once that is achieved, those five Chinese companies create a condition where they are able to charge a lot and get to the so-called recruitment stage of the theory of monopoly. And once manufacturing knowledge is lost, it's actually very, very costly. It takes an entire generation to relearn how to build and run steel companies as well. So once you've closed down the last steel company of India, it would take 25 years to rebuild that knowledge to get to efficient state of the art global steel companies. And that's an unpleasant arrangement to contemplate. So these are the two reasons why it's not okay. This is not an optimal arrangement for the people of China. I'm the first one saying that the suppression of consumption in China is a terrible deal for the people of China. But the government of China is not legitimate. It is not a liberal democracy. The government of China is a community that has achieved and maintained some monopoly of violence and inflicts phenomenal levels of violence and unpleasantness upon its own people. I wish the Chinese people well. But I don't see a way out that if their government does stupid things for them, they have no way of pushing back against the government. They've got a monkey on their back. The people of Russia have no way to overthrow Putin. Yeah. Okay. So it is a very restricted zone of liberal democracy. When you get the feedback loops, when a government makes mistakes, then it gets hurt through a liberal democratic process and an extra regime comes along. If Donald Trump was an economist and significantly more articulate, he would say something almost like what you just said, which is he would make the case for why Russia or China, our countries where we should certainly not invite them as part of into this larger free-taste story because there is poor actors. And maybe he's threshold for what constitutes a poor actor is just a lot larger. For example, he may include India in that subset. And India has, in fact, I was reading your article with Vijay on the Indian Economic Strategy in the new globalization. We explicitly said he must first confront the difficult truth. Because growth from 1912 to 2001 was partly built on a global system being global systems benign neglect and a diplomatic dividend that has now been fully spent in the sense that we've explicitly expert loopholes as a country. And we probably don't have that anymore. And so, Trump's answer is we're going to forget about this globalization story and move to either multilateral agreements or bilateral agreements. And the way Trump went about doing this is by saying, one, we're going to impose outrageous tariffs on everybody, which means that we're sending a clear signal. This status code does not prevail because America is putting the bill over here. And when those high tariffs come into effect, every single diplomatic subset in these countries is forced to the negotiating table. As part of that negotiation, we will arrive at larger free trade contracts, but all of this is bilateral, multi-rattle, and in effect we're letting go of the globalization project. Isn't it, I mean, I feel like the argument you made, if you push it up to 100%, and add a few more countries to the mix, all the countries is troubled call a shithole country, which are not true democracies, and there are ways to argue that India is not a liberal democracy. There are ways to say that there are things that you simply cannot say or do in India, that effectively constitute this country not being a liberal democracy. Then isn't that so far from what, isn't almost what Trump is saying? Lighthizer is an embodiment of the new consensus in the United States. By the way, it's not just Trump. So Democrats also turned against this system of globalization when faced with China. Okay, so all of us are learning that bringing China into the WTO, in hindsight, was not a great decision, because the extent to which the Chinese Communist Party in the Chinese regime has misbehaved, has just been out of the world, and it is not a pleasant story. Okay, let's go step by step. Started Adam Smith, as a beautiful quote, he says, "Something like trade with civilized nations requires, ambassadors trade with barbarous nations requires force." Okay, so I do get that distinction, that you do free trade with civilized nations, and you'd be very skeptical about what you're going to do with barbarous nations. Yeah. And I find it very useful to use rankings like Freedom House or V-Dem, to think about who are the successful liberal democracies of the world, and there are possibilities for these countries to engage with each other in a way that they cannot engage with the barbarous nations, and the barbarous nations cannot engage with each other. So it is indeed a good metaphor on how to think about it, that once you get to rule of law and liberal democracy, and there are internal checks and balances that are created, that when a government does industrial policy, there will be more people domestically inside the country, who will scream about it, who will fight about it, there will be critiques, there will be mistakes that tend to get corrected, whereas once you get to an authoritarian country, they can just do industrial policy, and there is nobody left inside the country to object. So the coercive resources of the state can get used in very strange and weird ways, as we saw with China, and the Chinese state is able to undertake very large mistakes, but a couple of places they are able to destroy global competition on a large scale. Okay, so yes, I do think that there is a distinction there that is worth chasing. Now, I would have been a little more sympathetic about Trump if the high tariffs were used to bring a country to the negotiating table, and then the outcome was the great reduction of the trade barriers of that country. But unfortunately, Trump and team do not have the intellectual power to see this through. By the way, the USTR, the US trade representative, it is an office of trade negotiations in the United States. The USTR builds excellent documents about the trade barriers of each country. Okay, there's a great document on India, which documents all the Indian misdeeds, there must be a comparable good document on China, which will document all the Chinese misdeeds. That should have been thrown on the table of each country, saying, "Dude, I have a 50% tariff against you. This is my charge sheet against you. Come back to me with your knocking out 80% of this by economic significance, and then we'll negotiate a little bit, and in a week we get this done, and we move on." Okay, but unfortunately, we know Trump. That is absolutely not what was done. What was negotiated was trade deals for his own family members. What was negotiated was private agreements that there will be investment in the United States in base chosen by Trump. Okay, all kinds of weird things. So, I think a better description of what has happened in the United States is that the failure of globalization led by countries like China and India created the opportunity for demagoguery, and then a populist leader Donald Trump was able to harness the anger to gain power. And what he does with that power, it's his own self-interest. He's not higher-minded objectives of actually fixing policy. So, this is the way we need to think about the world. And I am now going back to John Maynard Keynes and Harry Dexter. White, this is the kind of thing they were worrying about. That when we make mistakes on international trade, we create conditions for people like Hitler to gain power. And this is why this stuff is so important. And why I am coming to you with a very flawed and ideologically impure story that basically a bunch of good countries in the world should make complete free open globalization, lockdown in a treaty that's better than the WTO, and that really rules out everything in the USDA or document for India. And then after that we get that happy world. But it's not a trivial matter and just ideological insistence that every trade barrier is wrong is not going to solve problems in a pragmatic way. As you saw, Ilha Patnayak and I for the first time in our lives, we went public saying, you know, in this situation, we are willing to support trade barriers against John. Yeah, I literally had the tab open on my laptop and thought it's second half of the best time to bring it up because by the end of the day, I'm not a rabbit hole. And so, I can come up with something that you said that's contrary. But I was surprised to read it. I didn't know it existed when I went to searching for this when I found the article. And so that's, it's really interesting. I, in my podcast with Tharunima, discuss the idea of intellectual property. And one argument that somebody could make is that intellectual property is not real property. In the sense that property is something that you own as a physical asset. The chair is yours and it constitutes some collection of atoms. If I were to take that chair away from you, I have now stolen from you. It is theft and state involvement in that crime is justified. If you wrote a book and I make a copy of the book, I haven't stolen anything because you still have your book. And so, intellectual property theft is not real. And that's one way to install this. Seems to me like a large part of what's happened. Can I? Yeah, you can. But knowledge and these artifacts have the characteristics of a public good. So when Newton discovers Newton's laws, he does not become the purer when you read Newton's laws. So it's non-rival, it's non-excludable, it just makes everybody better off. So knowledge is the ultimate public good that the Magna Carta was created and it has spilled over everywhere. You and I are happy in this room talking to each other, partly because some people did the Magna Carta in 1215. The right to sell his book though, you would argue that is the state should prevent me from making copies of his book because he owns the intellectual property's book. Is that something that's fair? So I think I'm not happy at the words intellectual property because as you say, it uses metaphors of property. But property is rival whereas we are dealing with things which are actually non-rival. Correct. That said, I think that we need to ask pragmatic questions around copyrights, trademarks and patents. I think the pragmatic question is, are you better off with these or without? So this turns on an empirical question. So for example, there is a fair amount of literature in the field of drugs that the patent regime, I think 17 years of exclusivity has served to bolster R&D in two drugs. It's a pragmatic question, net net by creating patent tickets and interfering with other people's abilities to develop a pathway to make ozampic. We make the world better off a worse off. I don't have an ideological answer to that. It's an empirical question. So what we need is to keep on doing research, doing estimates based on data and judge it, does it make sense? Does it not make sense? For example, I am reasonably convinced that software patents are a mistake. They have not delivered value to the world. I'm happy to do a long story around software patents, Richard Stallman gets this stuff. There's a beautiful book innovation and it's discontent which is about the problems of patenting. And so I think it feels other than drugs, the case for patenting is much weaker. Okay, but when you go to copyrights and trademarks, then again, it's different kinds of logic that if I make a movie, should I have some ability to recoup some revenues out of it? You'll end up needing to bring some state into the picture. And I view this as a pragmatic question that how will you create conditions for people to invest in building these complex creative works? A purpose is to get more people to commit and invest in complex intellectual artifacts. Now, the word property was imported from property law and jury rigged into the words intellectual property. I get that it's not entirely appropriate. I think we should constantly ask ourselves pragmatic questions. That does it work? Does it add value to the world? For example, I am an a critic of software patents. I don't think software should be patentable. I don't think business methods, the Reagan period expansion of intellectual property was appropriate. But I think drug licensing, drug patenting is a regime that has worked and why do I say so? Because we have 100 economics papers that prove it. So I am a person that would like to live in empirical evidence that show me does something work. If it doesn't work, then we should change course. I don't think it's useful to apply ideological lens to these things. In the beginning, you laid out four reasons for state intervention, like necessary conditions. This doesn't seem to meet any of those for it. So here, the claim is that by using state power to draw the lines between what is a public good and what is not a public good. So think of it like the market. uh, uh, make creating role that the state plays in the land market. The state creates a land title registry. That's a public good, which clarifies the rules of the game around transacting. So this is a bit akin to that that I invented something and the state is creating that registry of who invented what and establishing rules of the game on my ability to license that invention. So think of that as the public good that the state is creating. So analogous to a land title system. The reason I ask this is a large part of this free trade problem. He's also countries like India and China being quite as if ever it comes to using intellectual property. Somebody in the US, you know, comes up with a drug or has an invention and there's a shop in China that manufactures a million of those. It's identical copies. On this narrow question, I think India is doing much better than China. Yeah. Okay. So all in all, the experience of global corporations with India has been decent. There is a little bit of IP theft. Largely, there has been a culture of Imandari. Can I want to use the word Imandari carefully? That there has just been decency and norms, not necessarily enforcement by the Indian state. So the drug licensing regime changed and Indian drug companies changed course back to by state power. So the Indian rules around drug patterns changed. But in many other things, like look in China, here's what you get. I'm a foreign company. I go build a factory in China and they're making some exquisite ball bearings for me. But without my knowledge, my local Chinese factory manager has used my drawings of the factory and the precise specs of my ball bearings to create a clone factory 500 kilometers from there. Yeah. And all my knowledge has been stolen and now high quality counterfeit bearings appear in the market. This is what happens in China. It seems to be a large not happen in India. It also helps to travel lingua franchise English. So when we the Indian elite speak to each other in English, it's inherently more open for foreigners to be present in the room. In China, even if you and I know English, in the presence of a foreigner, we switch to Chinese, which makes it much easier for us to conspire. So this is the importance of all of us being part of the global standard of English. Also greater Imandari in India. There's more decency in India. I've had many conversations around this with global corporations. And by the way, they say, yeah, we have small problems with IP theft in India. But not the kind of terrible stuff that happens in China. Yeah. And a libertarian from China would say whatever that means, would say something like, we respect liberty in China. We don't understand this intellectual property premise, but the rest of the world seems to be operating on. And what we think is that you should come to our place or for the liberty and eliminate this need. So something like your drug formula or the design for your printed circuit board is part of the entrepreneur's responsibility. That is distribution is your responsibility. Figure out how you will defend your own market, just like in every other way. And this is cronism. Whether state erects monopolized markets through issue of a license by way of a patent. If actively saying only you can participate by selling this good or service in this market is cronism, that's crony capitalism. And we think that it ought to be the other way. So let's go step by step. Let me start with a purely domestic example. The state creates this artificial thing called a land title registry. And now your land and my land is delineated. We've got GPS coordinates of where is the fence. And that is the end of liberty in the sense that now you can't squat on my land and I can't squat on your land. So the creation of the right, the creation of that state, public good does involve reducing the freedom of each other to steal each other's land. Otherwise, without that role of the state, we would not have concepts of our own rights. Now let's take a drug example. Okay, so I build ozampic in America. Now my reason and my incentives to build ozampic in America are grounded in some 17-year patent prongs that you told me that I could get an NPV of enhanced profits from ozampic for 17 years. And based on that, I did the R&D, I did the manufacturing. And if somebody will steal that idea and mass produce it in China and flood the world market with it, then that is fundamentally distorting the incentive environment under which the R&D is getting done. So then my response will be, "Okay fine, you want to be that kind of country trade with barbeque destinations requires ports." So then a country that takes that position, which is excluded from globalization. So yeah, then you live by our own rules, but then you're on your own, you're cut off from globalization. The Chinese government's active involvement in its manufacturing sector, for example, is viewed as somehow a communism. That the state is proactively paying a role in what should be manufactured, in what quantity, financing the capital expenses, lowering barriers, doing whatever it can to make sure that private entrepreneur has the very best charge of succeeding globally. It's the same argument for patents and IP. That you're saying that the United States government is offering an incentive by a way of an applies market to help its private industries, build the things that are required and be the most competitive. In both cases it's communism. In the case of the Chinese use of industrial policy, it is grounded in the coercion of households that effectively a high tax rate is imposed on the households. The resources are taken into the hands of the Chinese state and that is delivered as a subsidy to the exporting firms. And it's done in many forms, cheap electricity, cheap land, etc. But in the case of the global intellectual property regime, the rules of the game that are being established is that Mickey Mouse is the intellectual property of Walt Disney. And you want to create your own mascot. Go ahead and do it. Nothing prevents other people from making their own mascot. So there is no use of public money, of course, of resources in the marginal Cartoon character creation. The creation of Cartoon characters is purely done by the private sector. The point is whenever you create a Cartoon character, the state supports you to protect your idea for some number of years. So I think that's qualitatively a different arrangement. It's an open access system where anybody is allowed to invent a drug and they all get that protection. Whereas here you are actively choosing some priceless and some national champions and feeding them money year after year. It's a different arrangement. I do think this is qualitatively different. Not I do not agree. As I said a moment ago, I'm not saying I agree that all IP concepts and protections are appropriate, particularly about patenting. I think patenting in fields like software and finance has been a pretty ludicrous idea. And sensible liberal democracies need to keep on debating these things. That does it make sense? So I'm not an absoluteist on this. But I think the economics research is quite clear that the drug patent regime has helped bolster R&D into drugs. And in economics there are a few things in the world better than more R&D. So when you can create conditions for a society to do more R&D, buy balance and device private actors like not government giving people money to do R&D. But really private self-interest generating more R&D is like it's a really good thing. It's a really nice thing. So I think there is clear evidence that the Western patent regime has fostered Western R&D into drugs. And so I support it. Got it. This does not necessarily require a response but I'm just trying to think of if you were speaking to somebody who truly believed in the position I'm currently taking, what would they say in response to this? And I feel like for your first point on the question of coercion, they would say this is exactly what the US for example, or Europe for example does, where they cause individuals by way of taxation and then use part of the money they collect to set up this government agency whose job it is to protect intellectual property rights. And then a lot of money is spent on bureaucrats. So for example, I have a patent as of today because the company we run is a hardware company. And so we are patent granted on some of the hardware that we've built. That took me seven years to get that patent in India. It went through three or four rounds of review. Somebody is looking at this understanding what it is. We'll call with them to explain why it's unique invention, all of that. And then ultimately very safe patent. So there is quite a bit of money actively being spent which would otherwise go to other more productive uses or remain the hands of the citizens. But if you allow me to use the analogy with property which I'm liarry about doing but right now I just want to be a college debater. If you will allow me to use the analogy with property then when we build a property title system, a land title system by the government. It's the same idea that we tax the people. We take that money, we build a building, we build an office, we hire 100 people and they maintain cadastral maps, they store title. And so then somewhere there is a piece of paper which asserts your ownership of a certain piece of land. And then based on that you are able to call down the coercive power of the government against somebody encroaching on your land. That is public goods. That is the nature of government. And again you see the analogy with property is quite strong. That if it's my idea and I patented it and you start using that idea without licensing it from me. Then I can call the police and say you're squatting on my property. Okay. It's not an ideological point, it's a pragmatic point. We should be asking the question, does it foster more innovation by society? Now if Mr. Disney stole that for 84 years you will own the rights to Mickey Mouse. Will Mr. Disney invest more into creative works? That's the empirical debate. I don't know the answer to that debate. Think of hundreds of cartoon characters that I've seen. being invented in India. Now in the streets of Jabalpur and Jaisalmeer, there are stickers being sold to children, which are illegally using those cartoon characters. Would India be better off if the coercive power of the state was there to enforce against illegal use of those characters? So that the revenue stream went to the creator, would there then be a bigger creator world of people imagining and inventing interesting characters? If true, then I would be for doing it. I don't have a position on whether that is true, because I do not believe that this is an ideological question. This is a pragmatic question. Are they saying, I'm clear. I think I understand patterns in finance or a mistake. I think patterns in software or a mistake on this much. I feel clear. And that patterns on drugs work well. These things I know because I've read papers I've thought deeply about it. So I'm not being ideological that patterns on CNC rates. Are they good idea? Are they a bad idea? I will say I don't know. Yeah. Let's be pragmatic. Like, how do you create conditions for more complex R&D and intellectual work in a society? The intellectuals are the yeast that make a country rise. So you want to create conditions where there is a bigger effort and more people put conscious, focused thousands of hours to invent more cartoon characters. That's a good country. I want to say something. So sometimes I have a private rant I do with friends sometimes about how a digital photo is not a real photo. So when you use the word camera or photograph, what we historically meant is that there's a physical film. And then there's a 45 degree camera or a mirror. The flap opens up. Physical photons enter the camera or reflect and then imprint themselves on the film. You have a negative and so you have a photograph. What's the digital camera, which the photo you're looking at, is a representation of what a sensor thinks it is looking at. It is not even the real photons. And so we just use the word digital camera or digital photo, but they are such different things if you really think about it. And I don't know. I don't know. I don't know if there's a real argument. But I'm saying something like land makes sense because physical atoms. You can touch it. You can feel it. If I take it away from you, you no longer have it. That way, rivaled is it's just a physical asset. It consists of atoms versus ideas which don't consist of atoms. So look, I'm with you on saying that land is rival and excludable. If I sit on land, you can sit on the land. And I can, in principle, put up a fence and exclude you from my land. So land is absolutely a private good and it's not a public good. Whereas knowledge has characteristics of a public good. So we are doing something unusual. So I'm not buying into the simple minded extension of concepts from property by slapping the word property on intellectual and calling it intellectual property. If you import all the doctrine around property into intellectual property, it would not be correct. So I'm not there. - Got it. - Yeah, fair. - I am at a place where if we do this in certain situations, we do drive up the incentive for R&D and innovation in a society which is good. So then we should do it. Meaning it should be viewed in a pragmatic way. We should look at the evidence. - I hear you. I'm going to like, Frakhat Amit Varma here and I'm going to hear the libertarian in his voice and say something like, sure, one could argue that if you set up government hospitals, millions who have access to no healthcare would get access to healthcare. And hence of that population distribution, some would have a high likelihood of being more innovative. So you would get better R&D outcomes. Many of those smart people, now they don't suffer from tuberculosis anymore. Autobuculosis is a bad example because you would say public health. But who don't suffer from, I don't know, like, who are saved from that current heart attack? Because you have a government run ambulance service in a government and hospital. Well then go on to do great innovative things. - And my response would be A, there is no free lunch. So the government does have to spend money building a healthcare system. And I would argue that it is possible to construct a private healthcare system with the government regulation of health insurance that would deliver comparable outcomes at a lower cost to society. So it would be a pragmatic argument rather than, an ideological argument that can be done at a lower cost. And in general, if we can use private production, we'd get it done better. - I understand that that's fair. And also that privately being able to protect quote unquote in Clashwood property is fairly difficult. And so the public would argument then should flow. I hear you. Usually at about, where an R&D 10 minutes in, I ask the guests to go on take a break. But we can discuss beforehand. - Okay. - You're okay. Then we can just continue. So when we say we want to trade across borders freely, we also mean people because labor is something that we have to buy in self. Now on the people trade, again, if I go back to the US election Trump, there are two interesting positions that folks on that side of the argument, which I'm looking to defend seem to hold. The first is the culture argument. People who come across the border don't simply bring their labor. They also bring their ideas. Now, you and I may have spent a lot of time in effort constructing this edifice of a liberal democracy, instilling the general population with ideas of freedom and liberty. And then setting up the state that does, few things really well on those few things are very well justified. Follow the principles that you highlighted, etc. Now, many of those folks who come across the border will at some point be citizens. Now, it's a complicated question about who gets to vote, who should vote for whom, how do we structure the voting base of a country, all of that. But in effect, we'll have franchise and be able to elect somebody into power. If they hold non-liberal values and we bring in people in such large numbers that they then get to effect the government that we elect and the policies that that government then brings into shape, then we have lost our liberal democracy. When we suspect that that is the case, when we suspect that some people from some parts of the world are fundamentally illiberal in ideology and we can prove this through conversations with them, for example, does that make a reasonable case why we should prevent them from coming into our country? I want to give you the strongest example of that kind of phenomenon is Israel, okay, that when the orthodox Jews from Russia came into Israel, the previously liberal, Nahruvian Israeli society took a sharp turn and became far more conservative, religious, nationalist, and so the very character of the Israeli body politic was modified by the large scale entry of the refugees coming out of the fall of the Soviet Union. So that's a vivid example where the culture and character of a country changed dramatically, okay? So my response would be in three parts. And so again, I'm going to irritate you by being pragmatic and not offering any simple debates. Step one is that I do not believe there's any such thing as essential identity that each of us respond to our circumstances, to our environment and all of us have seen within one or two generations the Indian descendants of very conservative Indian migrants into the West become fully different people because they assimilate and they absorb the local society. So I do not believe that there's any essential identity in being Indian or Hindu or Muslim or anything, okay? Give it time and these things will change and there is always the possibility of a person choosing their own thoughts and culture and philosophy. The essence of the liberal idea is that we get to write the story of our lives, that we have freedom, we have agency and other people do not control us, other people do not define who we are. And we each of us write the story of our own lives. We live life on our terms and we decide how to live. And I respect everybody and everybody will look at those constraints and change that women brought up in the most conservative families where they land up in free societies. They change their behavior completely, okay, give it a little bit of time, it'll get sorted. So this is idea number one. Idea number two is that realistically in any country there are numbers in the picture. So it's like how many migrants could feasibly be assimilated into a society is something to keep in mind. And this is just a practical story that, you know, what kind of services would you build for refugees for migrants to understand India, to assimilate into India? I'm all for assimilation, but there would be quantity constraints and limitations in how quickly people can be onboarded into participating in the Indian society. And that is a case for having restrictions because we'd like to do a good job of the assimilation. So they're also I'm willing to go along with a pragmatic position that it's not an unlimited number of people coming in at any one sudden point in time, but rather a certain principle and a philosophy of openness where generally you are open, but you do think about these kinds of constraints. See, because under a state of freedom, suddenly large migrations don't happen. Suddenly large migrations are a scenario that is conjured up by the nationalist to create criticism against migration. Actually, migration is an organic thing. One by one, people think for themselves, they figure out where they'd like to go. And it takes time, it takes effort. Finally, my third idea is that I do respect, once again, it's a bit like my concerns are on international trade that the unfairness on trade by China and India is a causal factor that got us to Donald Trump. Okay? In similar fashion, the situations in Europe where many migrants appeared created greater support. for right wing, religious, nationalist, conservative, political parties. And this is harming the country and this is bad for everybody. So then that is the case to go slow, get the assimilation done right. So it's a project of assimilation. Finally, I want to push back against an essentialist claim that is implicit in the sort of thing that you said that there is something that is ascendant, that we have some culture and some character and they will somehow undermine or take away or spoil or reduce our culture and our character. And I want to say that who's to say that any one culture or character is particularly better or superior to others. All of human history is a kitchen. All of human history is a mixing, is an intermiguing that tribalistic notions of purity have never been useful or effective. All the good things come when cultures clash, collide and get recreated in novel ways. When at Shantiniket and they try to use intellectual property law to put a bar on all innovation around the works of Robindranath Tagore. It had a stifling effect and it converted the ideas of Tagore into something dead. Far preferable would have been an eclectic open-minded approach where there would have been 100 kinds of fusion that would have irritated some people. But out of that, you would have got some bangda versions of Tagore. That would have been fun and pretty and who knows what culture is. So if you look at India, India is one giant melting pot. We've had thousands of years of immigration where different people have come in. And all of that adds up to the idea of India. When we read Discovery of India, the beauty of India is the fact that your ancestors and mine came from outside India thousands of years ago. And for thousands of years people have kept coming into India. So what is to say that our ancestors were better and the new people coming in today are worse. It's not true. So there's something interesting and beautiful in bringing new ideas in. Immigrant bring new ideas and that's good. It's vitality. It is energy. It is always better to take in new people and then see where that takes us. Finally, there are people. They are not better than us. They are not worse than us. They are different. It's great. Let's talk about it. Let's argue about it. Let's find interesting conversations at the edges of culture. You and I have blind spots on the stuff that we never imagined that we could disagree about. In fact, being exposed to other people will make us formalize and articulate interesting differences. And we might see the world in new ways. Similarly, consider the UK. I think the UK has done a fantastic job of taking in people for a thousand years. Think back at the history of the Jews in Europe. The Jews were always treated badly in Europe. And a singularly liberal friendly country was the UK. Again and again, the Jews who came under persecution in Europe would run away to Britain. And that has something to do with the incredible success of Britain in all intellectual matters, in finance and so on. So it was a net positive to take in migrants. Or you think of the Indians who were driven out of Africa, out of Uganda and other places. Who went to Britain? They first went as working class. It would have been very easy to excoriate them, saying that these are actually trash. These are shit hole people and all that. But their kids are absolutely brilliant. Their first class participants in the UK society, they're every bit as brilliant as anybody else in the UK. So I don't buy any simple labels. Everybody has beauty and wonder inside them. It is our job to reach out and talk to people in good faith and talk to each other. It is always possible to have bad leaders who will other people, who will create us and them distinctions. Great leaders make us better than who we truly are. Great leaders help us to rise above the tribalism inside our breast and do better than what we naturally are. And once we reach out and we start talking to each other, the world only becomes better. I have to fact check if this claim is true. But I have read now multiple times that in service conducted in Western nations, Canada, the UK, multiple European countries, of immigrant Muslims who have entered these countries. And the survey question asked something like, would you prefer Sharia law being the rule of law in this country versus what we currently have as a liberal democracy? A large number. And by large number, again, a fact check, but it feels like a majority of respondents respond saying that, yes, we do prefer Sharia law over what we have in the country right now. And let's say this is true. Let's say for example that we do live in a world where this statement is true. I think when you say that we do like to invite other ideas in and then be able to have a conversation about these ideas, it presupposes some first principle. Like we're both rowing the boat in the same direction. If the boat you are rowing is to get yourself to a place of, I mean, a mythical heaven that you believe in. And this God that has given you that heaven and a book that is unchangeable and has all the dictates from now to infinity and is unchangeable. And what I believe in are principles of freedom, liberty and maximizing those things for you and me. It is impossible to have a conversation. That is the conversation can only be about whether your idea is true or my idea is true. And in their case, it's a deotological. It doesn't matter if it leads to worst outcomes. It is simply true since it came from heaven. And at that point you lose the ability to have a conversation here. If they form a large enough subset of some population, then you elect a representative to power who has the same ideas. And if parliament has enough of these people, then you have policies that have these ideas. Now, maybe this is a theoretical argument. But I think that somebody would argue. It's only a question of how many people with a certain ideology will into import before enough of those folks have willing to vote to bring those ideas into power. And you said something like, you know, give it time and these ideas will win. And two critics could be one that maybe you don't have time. Because of how quickly democracy can move elections that are every four years or five years. Policy is change every decade or so. So it's possible within that generation itself, as opposed to a following generation who have the chance to go through different schooling, have friends who have different ideas, etc. They don't have enough time to change their minds on these questions. And two, that citizens in that country, as of that morning will say, look, I don't want to give it time. That is, I don't want to be the generation that deals with illiberal ideas and then, you know, my kids are the ones who have the benefits of these, you know, new ideas on other questions coming in and then we have evolved world. So what would you say to that, right? That consequence of liberalism is that we must be illiberal to those who are illiberal. So I would respond into parts first. We don't have to fact check this, but I've seen households are raised under the United States where people ask the question, do you believe that every single word of the Bible is true? And the answer is that some 30, 40% of the people say yes. So nobody has a monopoly on religious ideas. These things are there everywhere. There are scientists who think that in the process of natural selection, it was efficient to have the failures of rationality in the human mind that we have a religion gene. The religion gene was a way of accepting some irrational ideas so that we could all bond with each other irrationally and form armies and go conquer the world. So this irrationality is there everywhere and there's no running away from it and it's not like religions other than Islam are that much better. I once was part of, I once was an observer in India of some hysteria where people thought that gunpaties were drinking milk. And all over the country highly educated people ran to purchase milk and tried to feed milk to gunpaties. So if you want religious irrationality, nobody has a monopoly on it. So this would be my first part of the answer that it's easy to talk about Islam in this fashion, but this is actually a problem with all religion. And none of us have the luxury of getting to live in a world where essentially everybody has reached a post religious rational secular world that is not a privilege that is going to be given to us in our lives. By the way, I do believe that religion is on the decline. It's beautiful data about secularization year after year, decade after decade all over the world across every imaginable religion religion is dying out. So things are getting better. I have no doubt that the world is getting better. Can I just digress and tell a funny story that gets you the essence of why religion is dying? Please absolutely. So I'm just going to make up an example. Were you brought up as a Hindu? My parents are Hindus. So then you have full exposure to all the Hindu ideas. Now if I expose you to a new story like somebody walked on water, you will laugh at it and you say what an absurd idea. So when you are shown ideas of other religions as an adult, it sounds ridiculous to you. The only reason why you're willing to accept the ideas of one religion is because you were indoctrinated into it as a child. So that's the first piece of little care and don't be so proud as to think my religion is better. I think as a beautiful line, he's a barbarian who thinks the ways of his tribe are better than those of other tribes. We are all like God's fallen children and we should be skeptical about. all the things that we are taught in the nature of these tribalistic things. So I have no doubt that when you make one random accident and somebody becomes an atheist, okay like my father became an atheist. So my sister's and I were brought up without any religion. Now when we are told about any religion, we start giggling, okay we are equal opportunity of friend as we giggle at all religions equally and you can never accept it. It's like I think there's a window of time inside which you can be indoctrinated into these things as a child once you grow up being secular, you can never go back to these things. So because of this every generation, some people escape the grip of religion and then their descendants are free of it forever. So this is why the world over there is great progress on secularization and I do believe that in a hundred years a lot of these problems will go away. But you're discussing shorter time horizons. Yeah. My answer part two is I agree that there should be limitations on immigration because the absorptive capacity of every society is limited. That's a pragmatic response. So for me the simple facts are that in Europe, the political support for conservative right wing religious nationalistic parties is higher where there is more immigration. Yeah. And so that is reason enough to go slow on immigration. But there is an assimilation speed issue and what does need to think about it. As an aside, I would love to do religion on the podcast and more philosophical right like is the unmoved mover a good reason to believe in God for example. Yeah. So I mean if you know guests who are awesome philosophers, if you gentle listeners listening to somebody please refer me, but I'm going to talk to anybody. I'm happy to defend God as well, so I'm going to talk to atheist and figure out why God does exist. But an argument that I usually use with folks religious is I actually make the claim that they are atheists. In that they don't believe in Zeus, they don't believe in any of the. You're an atheist vis-a-vis every other religion. And so you are 99.9999 percent atheist. And let's say I'm an atheist, I've gone one God for them. And so we're almost the same. Another far apart. I found that this makes quite a dent in the argument. What I'm hearing on both the answers that we've covered two or three things on the cross-border stuff is we start over this first principle of freedom. So I want to buy labor from Bangladesh. The labor is cheap. I can pay much less than I'm supposed to. I would love to bring them into my country. And as would every other entrepreneur. So you know across the country then it's tens of thousands of businesses all the same look I want to bring labor from Bangladesh. And are you talking about India? As an example let's say you know theoretically it's me and I want to bring it from Bangladesh right. Yeah please do you have an inter-action? No because I just started thinking about it and I realized that no it doesn't work because by the time you're doing Indian labor law and minimum wage and overtime and all that the business case is lost. And actually there is ample amount of unemployed people in India. So there's no case to import labor from Bangladesh. Got it. Yeah no. I don't think I'm making a pragmatic case because and that's why I feel like very often this conversation I'm leaving the level of the autaki question and coming back to these first principles because questions like should we have a labor law will inevitably affect is having a labor law. An example of you know us preventing us building a more autaki world. So it's a little bit. The principle you should use is that when the state coerces private persons in India and it does an equal treatment of foreigners that's not an autaki discussion. You're saying pragmatic ocean is fine. So even in the last one. Just on what is the discussion around cross-border versus what is the discussion about everything. The line to draw is like we impose the value added tax a GST upon all pencils sold in India. It's equal treatment whether it's a domestically made pencil or it's a foreign pencil. Then that is not a cross-border question. The European carbon border tax is not a cross-border question. It is an equal treatment question that if a pencil is made in Europe it has to suffer that carbon tax. If a pencil is made in India and sent to Europe it has to suffer the same carbon tax. So then that's not a cross-border question. That is equal treatment. Right. And what you're saying is on a pragmatic level. Sometimes you can make a case for unequal treatment. Yes. That is let's say we're allowing a million migrants and the million and first migrant is simply not allowed. Correct. And does it first come first of basis? Yeah. Or that there is a case for the countries of the world to get together and draw walls around China saying that a systemically important country that practices these kinds of policies will wreck globalization for the rest of us. But not in the culture question. On the culture question. That's another example of being willing to make pragmatic compromises. Yeah. But on the culture question especially I have a concern here. And so for example when somebody says that look we have separate marriage acts in India. I'm off age where lots of my friends are getting married. And so I've had the displeasure of having to read all the marriage acts that we have in India. And in fact I educate all of them saying look you should know what you are what you're consenting it to when you get into a marriage in India. Now I ask for example why polygamy is not something that everybody simply has legal access to. That you can marry whoever you want, how many of your partners you want. And every Hindu so believes that they can only marry one other partner can still do that. It is not illegal in a polygamous world to have just a single partner. So it doesn't take away from you. But they would say something like no. This is our cultural cohesively, culturally. This is how we live and we say. So that's a separate debate around freedom that do you want the state to get into your personal life? It's a separate debate. It's not a cross-border question. But on the thing that you believe. So when I asked you what the role of the state was, you said this monopsy on violence to protect liberties. In this case I don't see that case. But if the idea. So I mean in effect when you say we want to corner of China for some respects, I'm saying can we take that logic and translate it to countries that have. Now I understand that there will be individuals who do not have these ideologies. But there's no way to test for it. Right? And so in effect what a term or most protectionist folks would say, or many European countries when they look at folks coming from Africa or at least. But I gave you my Christians example, no? Yeah. That if you measured the Christians in the United States and you asked them a question that do you believe that every word of the Bible is true? You'd be terrified of the outcome. So it's not as a religion is a problem of only migrants. Religion is a problem in many countries. Yeah. And that number gets better over time. That is. So secularization is happening. So the whole world is getting better. That to be patient and pragmatic, logic is working. But we recognize that there is a religion gene inside us. And for a long, long time, humans will be vulnerable to these kinds of obscure anti-striiers. So it's just something we all have to grapple with and we have to live with. It's a flaw. It's sort of like the human knee is a lousy design. Mother evolution did a lousy design of the human knee. Like that mother evolution has left some junk inside our heads so that we are vulnerable to things like religion. We are vulnerable to tribalism. So these things are there inside us. We have to grapple with these things forever. Yeah. And I'm just saying that I don't feel I'm happy to also attempt to do a case for a full autarchy, like a North Korea like state, which does. Which in theory does nothing with anybody else and lives just in their bubble. But I feel like pragmatically the way arguments against open borders and free transactions take place are these arguments. Where people say things like culture is an issue, the people come across a borderline issue, or those countries behave very poorly and so that is an issue. Their loophole is in the free trade. So first of all I have given you my version of the argument that I have watched the rise of right wing conservative religious nationalist parties in Europe. I've read papers about the correlations with the presence of migrants and it has made me concerned. So this is enough to justify certain restrictions on immigration in my eyes that take it slow, you know, build your country one at a time. Now there are many elements of that argument that you've just described, which is also wrong. For example, it is common in America to claim that immigrants are more likely to commit a crime. It just happens to be factually untrue. That immigrants are actually very careful, cautious, law abiding folk. So there is a lot of tribalism that is being turned into attacks upon migration by demagogic politicians and tribalistic instincts are being used to generate propaganda. Modern social media is just a land of disinformation. And you've also got things like the Russian and Chinese governments feeding propaganda into all the liberal democracies trying to create more conflict within liberal democracies. So once we are in a world of social media there is extreme danger of information campaigns that are designed to distort everybody's beliefs. So hatred of migrants is a standard theme that is being pushed. And to that extent, I think it is also our job to stand up and say, "Do this is wrong." If we know that in Vietnam, factors are employing children to manufacture goods. Is that a case for the Indian state to step in and say, "You shouldn't be importing for Vietnam?" No, I think each country should have its own views and its own preferences. So let's take, let's start at taxation as an analogy that what should be the GST rate in India is India's business. What should be the GST rate in Bangladesh is the business of Bangladesh. But you just need the rules of the game to be done correctly in the case of taxation that Indian exports are fully refunded all Indian tax. And when Bangladesh goods come into India, they are enforced with the Indian tax. And then you get this neutrality. I talked about the carbon border adjustment mechanism of Europe that whatever goods are sold in Europe should be paying the carbon tax beyond that each country is free to have their own level of carbon taxation. So like that each country is free to have its own rules around child labor or to interfere with women working or women working at night and then each country should figure out for themselves and the countries that do more to enable more work by more people will end up with a stronger exchange rate. So it all works out meaning it's not unfair competition it goes into the exchange rate. It sounds like a reasonable argument for Indian entrepreneur. So I will go to the government and say look I am employing people in India. Now let's say the Indian status is so heavy on deregulation that they wipe out 95% of our labor laws so it's easy to hire all of that but which I support. Which you support obviously. Yet in I can't hire children in India and I think most of us would say look ideally we don't want five-year-old, ten-year-olds working in factories that's something that we would preferably not have as part of the country that we live in. Now if that is the law then you can point across to Vietnam and say look in Vietnam they have children who work there they work 18 hours a day it's effectively a sweatshop and so they're making goods and services at a fraction of what we do. In India we have had regressive social practices we've had conservative principles which are hostile to women so we have laws we have had laws where women are not permitted to work the night shift. Yeah I know yeah yeah. So I think each society has its own preferences. What we would like is that there should be liberal democracy so that there's some amount of pushback by the people but beyond that there will always be differences in point of view and you know you can't get into these things. There is a labor standards worldview in the West where they seek to impose western style labor law upon poor countries and I fully disagree. Right and so when you'd argue saying something like an age limit on hiring is something that we shouldn't generally have as part of the labor code. I'm saying it should be the social and political choice of each country where they want to go. So I do believe that at the Indian level laws low per capita income it is wise and efficient to normalize long working days. What is called sweatshop labor is the way in which you become a rich country so it is crazy that in India we have imported first world labor practices that is not wise and appropriate. So whatever it is that is the luxury of a first world country we in India should do different. I mean if it's mind diamonds by way of slavery I'm asking is there some case slavery is coercion it's a different line absolutely and I'm saying it's not happening on our borders it's happening somewhere else so the should the Indian state upon finding out that there is a country that does practice some behavior pattern that we find immoral could be slavery in this case since that is your line you think that question is a problem and I agree that's the right. You could debate for example the whole blood diamond story okay you could debate it would have to be thought about one at a time. I think these examples are a bit contrived because realistically all modern production happens through fairly complex mechanism so it's no longer interesting to have children producing because almost all production is highly mechanized so this labor intensive stuff really doesn't work many people in India have this vision of labor intensive manufacturing where people will actually make things with hands that's over it's gone like nobody can compete with a spinning machine yarn is now made by machines and the machines are so complex that you can't put a 10 year old child to man modern spinning machine and it is impossible for primitive technology of spinning to compete with that so these arguments are slightly hypothetical because the nature of modern production is pretty complicated and child labor slave labor doesn't work that well and it's a fair debate and I would look for sensible middle roads I would definitely push back against the western approach to labor standards. See in India we have stupidity in the labor law we have western levels of protections of labor in India which is entirely wrong okay what would be wise in India is to run a certain amount of long hours and overtime rules and multi shift and all that because that's how poor country produces and we should push back against a western imposition of western style labor standards upon Indian production right and here I feel the entrepreneurs argument when an entrepreneur approaches a state to lobby them to impose a tariff or have some sort of subsidy usually it's the capitalist approaching the state asking for you know actually I want to generalize that slightly okay so to produce anything requires 10 kinds of inputs at any production locale of the world there will be three inputs that are other cheap and four inputs that are other expensive so every firm will always go to the government and see these four things are expensive this is why I can't produce here and I can't export here the only good universal solution for the government is to say no protectionism you're on your own now you choose if you can hire labor in India and you can successfully export great if you can't you can't so that's the only sensible place to be if a government starts even having that conversation that you know I'd love to produce in India but I have this problem will you please give me a subsidy to overcome this expensive input of mine then you are down a very slippery slope and then it forces also the entrepreneur to instead lobby for deregulation because you're trying to say that okay then make it as free as possible so that I don't have the barriers that other folks have and if I do the expanding circle we spoke about children but you could extend this to animals we you know your country may have certain regulations about how you test you know cosmetics or what you do to make a drug but other countries is simply not have that and so look all over the world some people are turning vegan it's their birthright and like this doesn't need to be mixed up into international trade they separate debates that Susan does not like the treatment of chicken in industrial facilities yeah she does not like how chicken are transported in trucks and her answer she stops eating chicken that's good it's a healthy and sensible way to respond to these challenges and one doesn't need to turn every one of these questions into an cross border problem meaning there's enough abuse of chicken within India I'm not turning a cross border problem I'm asking domestically that is you will say the park it is a factor of that culture and the society that they they will then decide should we lobby the state to have regulations that prevent abuse to animals now the challenge is if you say yes or even if our society does come to some sort of a consensus entrepreneurs are immediately disadvantaged because there are things they simply cannot do to test and so their products are harder to manufacture more expensive to do R&D etc and immediately become uncompetitive when it comes to a country that does not have these regulations at that point is it reasonable for state to say look we have these regulations in place this is a moral regulation we think it is right to do this it would be akin to slavery or any of these things we put in that bucket of sacred things that we don't violate and so are imposing or pushing back and then look all the way back to the most when you say China's a coercive society she again this doesn't actually happy that much in the world because when you think of the complexity involved in drug R&D and drug testing it's not actually something you can do in Sudan so you're really down to a few countries in the world and then their standards are not that different from each other so the abuse of monkeys in the United States in drug testing and the abuse of monkeys in India and drug testing is not that different so it this can be put up as an interesting example it's just that in the real world it isn't really happening that much so I think of all these as interesting edges of the edifice the fundamental edifice should be openness and then there can be some small deviations here and there in a pragmatic way but fundamentally I stick to the basic idea that a very open environment is a good thing and that almost all of the traditional left conceptions are just wrong for example where I was willing to go around Robert Lighthizer and the modern view of China is absolutely not leftist protectionism it's just a very pragmatic understanding of the modern world and suddenly a person like me and Ila is starting to say you know how does this work for us it's definitely not part of the old development economics the old leftist thinking so I mean I'm primarily on the plea that everything that left thought about taking the nation state seriously something that we should be questioning okay then let me try and remove the fringes and come to the middle yeah we would argue the state exists monopolean violence to then use that monopolean violence to prevent somebody else from being violent towards me the right to namens so that China cannot invade me tomorrow what is not part of national security in the sense that I think most states if they start making the argument could really expand what they bring under the standard of national security like today AI is part of the national security question with lots of countries asking serious questions about what the AI capabilities are now when ottman started opening AI which is the first big leap I think on a public scale was nonprofit and then entirely privately run I don't mean they raise money I don't know this too but I don't think they raise money from the state in any meaningful way to build the AI capabilities but now it's a serious question about national security because you can inflict serious damage on other countries if you're able to build great malicious AI agents the question for chips and what happens to ty 1 it's not become very important question because the national security question the Indian state may say look we should be manufacturing most semiconductor in India or at least have meaningful parts of that supply chain here because if tomorrow the Taiwanese state turned out to be antagonistic to the Indian state then we would certainly be left high and right the rare earth's case in China there are enough examples here and there where we can now start asking questions like what are those industries still that are so important that we must certainly have all the barriers required so that we do it in India. or in our own country so that security is the base argument for this. How would you think about this? Yeah, there is something there. Okay, so let's go step by step. Step one, there is a military industrial base and you do need the ability to produce. Okay, modern war is a test of production. The Ukrainians are going through like 50,000 drones per day or some such number and the ability to fight a war is your ability to produce 50,000 drones a day. Yeah, so it is an issue. And so in military planning, we do need to achieve control of those production capabilities. Now there, immediately I would say that if you try to do North Korea and you will say I want all the production ability in India, the cost would go up dramatically. So now this becomes a pragmatic question that how much money are you willing to pay to have your own complete autarky? The fundamental principle of foreign policy is that you do deal making and you work with coalitions of nations. You enter into treaties with other nations. So we should be finding like minded liberal democracies and make deals with them saying, look guys, let's build a joint shared military industrial base so that everybody's costs come down. Okay, and to do strategic autonomy in India, which is autarky Indian style, is just to drive up the cost of the national security and that is something that we need to rethink. That it's much better to do treaties and work with many other countries. And now we can argue who are those countries that we will work with. Unfortunately, the nature of Indian foreign policy is that we make enemies out of everybody. We have no friends left. So then it's hard to find those treaties and we've got to ask this cost efficiency question that if you go alone, then the minimum acceptable level of safety will be very expensive. You're willing to spend that much. It is better to bend your head and make deals with 20 countries. And then arrive at a joint coalition about how you will deal with these military industrial base production problems so that we get that level of safety at a lower cost. So this is idea number one, which is actually an anti-autarky idea. Don't be North Korea because the cost of having your own captive M.I.B., the military industrial base is outrageously high. Idea number two, you wouldn't want to buy Chinese computer and network equipment because it is very likely to contain security loopholes. There will be backdoors whereby information is accessible or is information is being expel traded out or there can be a secret control system through which the chip on your tank will shut down when the time comes for war. Is this a legitimate threat? Yes. You and I know enough engineering that this is very much things that can be done and they're impossible to detect. It is not possible to do black box testing of a chip and test the presence of these kinds of capabilities because there will be one particular code that is sent to the chip and suddenly the chip changes its behavior. All that while the chip is a Trojan horse. So you just wouldn't be able to see what is going on inside the chip if it's been sourced from a hostile nation. So this is one more trade with barbarous nations that you can't trust China because there is no something as a Chinese company. Everything that is done by a Chinese company is controlled by the Chinese Communist Party. So you cannot be safe purchasing goods from all Chinese companies. Very well. Then you could flip to one other extreme which is I want to fully autarkick MIB that I want to make all the chips in India. This turns into a cost problem that India is such a backward economy that we are like 50 years away from making today's sophisticated GPUs in India. So it's a ludicrous thought that top-end CPUs and GPUs and network chips will be made in India for a long long time. So what you're going to do? Answer alliances. Who are the other countries in the world who have the exact same problem? Answer Europe. Every OECD country other than the United States is a potential Indian partner for exactly this question. The Japanese have the same problem. The Koreans have the same problem. The Taiwanese have the same problem. The Australians have the same problem. The Europeans have the same problem. The Canadians have the same problem. They all want a military capability where chips are used inside military equipment but you don't want to run the risk of Chinese chips with backdoors. Well, we should get into treaties with all these companies. Sorry, we should get into treaties with all these countries that you know what's the AI chip that will be there on the drone. It's all pool I effort and build a factory in Finland and make those chips on scale because Finland and the European countries have the knowledge and India does not or Japan or whatever. And this is the way out. So the answer is not pure otarki that trying to say Swadeshi that we will make all our chips in India is an expensive line of attack. You'll end up with defense spending of 10% of GDP or your flounder and fail. Okay, so I believe that there is an isro chip which is a I think risk-wee processor with a 300 nanometer track. Okay, now like yeah, it's cute 300 nanometers but really are you going to get anywhere at all making a modern drone or a modern rocket with a 300 nanometer process? No, we're going to need a 5 nanometer mass produced chip chip that will go on rocket and drones. How will you get that done? I would say go to the Japanese, go to Holland, go to Britain, go to France. Let's do deals. So the answer is not otarki. Answer is treaties that what is the nature of a treaty? What promises would we make to the Japanese government? What 15 things are they pissed off about India where we would give in so that they give us promises about a reliable supply of chips that are identical to the chips that are being used in the Japanese military? Yeah, however, sounds like your argument for why we should do alliances is because it is not pragmatic to do it as a country. It is not an argument for alliances as what we ought to do in that if we were capable of doing it as a country individually, if that if we suddenly discovered that we are an oil rich country tomorrow? I'm unfortunately an economist, so for me everything is cost-benefit analysis. So all my views are ultimately shaped by what is the pathway to get to a successful prosperous India. I am not using ideology, so if you accuse me of a pragmatic answer, I say that's a feature not a bug. I am always thinking pragmatically that why should you not be North Korea? It's a money question. It's inefficient to be North Korea. And so let's say if we're talking about the US not India, like a country that does have the means, then should they try and do this locally? The United States defense system pre-Trump is a fully globalized system, even in the United States. When you look at the F-35, the F-35 fighter is made all over the world. So there are parts and components coming from everywhere because when they do their procurement, they realize that the world's most perfect vendor to make this particular chip is sitting in Germany. The world's most perfect vendor for this subsystem is sitting in Israel and so on. And then how do I trust Israel? How do I trust Germany? You enter into treaties. So not Indian style strategic autonomy. You go into bed with these countries. You do a deep embrace of these countries. And so the pragmatic question that we should be asking in India is what are the 10 things that we want from Germany, from France, from Finland, from Holland? And in return, what are the 20 things we could give them? Which they want us to do different? Rather than saying that xyz is off the table, it's my strategic autonomy. Instead, the question should be what can I put on the table? What changes can I make in which rules, laws, policies, frameworks, mechanisms? What state coercion can the Indian state modify that will make Finland happy? And in return, what can we ask of them? If an Indian entrepreneur, by the end of her genius, creates a 5 nanometer manufacturing plant in India and is able to manufacture semiconductors, should they be allowed to freely contract with the North Korean state? Or should India say, look, we're not going to allow that box. Yeah, so I think that all over the world, these military frameworks are that when the German government is funding and giving military assistance to Ukraine, then they will simultaneously cut off all access to Russia. So you do want to think about trade with Barbarian nations, that you do want to think about who are the countries where you will end up fighting a war with. So North Korea and China are deeply integrated. And there is every possibility that India will have a military conflict with China again and again and again. So any kind of dealings with China and all Chinese allies, whether it is North Korea or Russia or whoever, is something that has to be viewed with great caution in India. And so it just, I mean, to me, it looks like although you've laid the base of this philosophy of individuals and individuals transacting, there is a layer of this pragmatism where you're saying that the state operates at its level. Like the unit now is the state, the unit is not the person. And as a unit, the state, this unit has two conjoined circles. You could fit all this in a market failure framework. Market failure is the state producing the public good or public safety. And in order to produce the public good or public safety, the Indian state cuts off the ability of an Indian person to export munitions to a hostile country where there is a fair likelihood of armed conflict in the next 25 years. But the negative externality has not yet happened in that. They've not had active yet. Yeah, but so the problem of public safety does have to be played in these very long-term things that you don't enter into treaties in a transactional way. Treaty is a deep 10 year, 20 year, 30 year, 50 year story. Yeah. And the market and the state don't seem like distinct circles, like these are endagyrams that clearly overlap. So at that level, at the level of the state, there are lots of times the state steps in and makes rules about how the market is. So when it comes, so start, the motivation of the state is to deliver the public order public safety, to deliver the public order public safety. You want foreign policy and a military policy. Yeah. In every country, the military policy involves export restrictions. Because no country wants the situation that the Indian manufacturer is selling to somebody who might be invading tomorrow. By the way, not least, leave aside volumes. Think of data. Okay. So if the full information about the Indian kit is available to somebody abroad by purchasing a small order, then that's not good for Indian interests. So export of munitions is always something that is covered under the larger project of national security. What about like banning of Chinese apps on the Play Store? You know, those sorts of things. So I think there was reasonable evidence about TikTok extracting data and sending it back to command and control systems in China to the Chinese Communist Party running propaganda campaigns based on their access into your brain. So by the way, I feel similarly about Instagram. Okay, the fact that Putin and Xi Jinping freely operate on Instagram. But there's the hell out of me. They are beaming propaganda into your eyes, writing on Instagram. Yeah, I hear you. I'm actually a little bit surprised because I feel like now I'm making two arguments. I'm making the case for more free trade. In the sense that in a large part of this, I'm sort of pushing back and saying, no, we should actually be perfectly fine trading with China, with Russia, with North Korea. And so, no, I'm not there. So I think that there is a vast edifice of anti-globalization in India where people are comfortable and have accepted barriers to the movement of people, to the movement of capital, to the movement of goods, to the movement of services. I think 95% of those restrictions can and should be removed. There are borderline cases where one should debate. So, you know, for example, imagine senior engineering and business talent coming into India. Should there be any restrictions against this kind of immigration? And the answer should be no. Going out? Not going out and coming in. I'm asking for going out. For going out also, there's no role for the Indian state to interfere against people from Delhi. But what are the incredible engineers who play a part in our national security question? That's the freedom of the individual. Nobody should ever interfere against a person leaving. So, by the way, I do think that concepts like passports and visas should not exist. So, because freedom is so fundamental, a person should be free to travel always. Nobody should ever put a person into a jail, which is a passport. So, it's very hard to argue that there's any benefits from restrictions against individuals going out. But I'm on a different point on coming in. Look at the way the Indian state interferes with foreign workers coming into India. It's entirely unconscionable. So, you are searching for a cute argument. I am searching for pragmatic middle grounds. And I would argue that 95% of what is being done in India in terms of barriers on the movement of people of capital, of goods of services should be removed. And we will all become much better off because of that. Now, we spoke about goods moving across the border. But we spoke about capital. So, I run a flipped company in that our company is a Delhi-Vasee cop. That's where my holding company is. And we operate an Indian subsidiary. We raise a lot of our money from investors sitting in. Yoddu up in the US because those are the folks who simply are significantly more bullish about startups and what we can do. Now, in the last three years, four years, then the number of restrictions on movement of capital and on our ability to set up foreign companies, etc. is quite large. Like the RBI puts out a circular every six months that further encroaches on what entrepreneurs can and cannot do. And a lot of the arguments come from national interests, national security. These are the arguments that are used. Now, I feel like the economists in you would say something like, these are not good arguments. If you make a tangible case for why this is a reasonable ground for security, then pragmatically, I'm willing to back you on this. But the lack of meaningful data backing this claim that you are making is the reason why I'm unwilling to back you. So, it's not ideological. I'm not opposed to you ideologically. So, look, it's a reasonable thumb rule that almost all barriers to capital movement are wrong. Occasionally, there may be something. But I don't want to stand on ideology. Let's consider the conversation we had around culture, around how many generations does it take to change your mind, around the impact of the presence of migrants on the AFD, what share in Germany, and so on. On the fraction of the American population, which believes that every single word of the Bible is true. There's no running away from the problem of human society and politics, which is that it is messy. It is contentious. It requires many, many people to think. It requires many, many people to argue. We'll never be able to sweep away that messiness into a bin by a single self-swoop of ideology. There will always need to be people and argument and thinking. And that's just fine. Because the day you stop that thinking, the day you stop the debate, the depth of knowledge, the subtlety, the ability to cope with complexity and nuance, then as a country, we are in deep deep trouble. So I'm not looking for a simple, cute solution. It so happens. I've been in hundreds of capital flow debates, and the answer has always been more openness. I have yet to see a single capital control that I was willing to agree to. So while I'm always willing to make a pragmatic argument, in my whole life, I've never seen a good argument around capital flows where there was a case for restrictions. Maybe China. So imagine if there is a defense company in India and the dominant shareholder becomes a Chinese shareholder, that would bother me. So I would have those kinds of national security investment restrictions. Nathan Pai and I have an article on how would you enable a Chinese capital flow to come into India? And we propose all kinds of restrictions. So yeah, China, that a systemically important hostile nation run by a dictatorship, which is clearly able to coerce its people in all kinds of odd ways, is a unique and special situation. And then we should look at that situation and we should debate what is the right way to do it. I have one final question. But before that, something I troubled a few guests now on the podcast with this is who is a citizen? Now in a world with open borders, no visas. And I would suspect that by and large, you are not for the state recording you, in a sense that you have an ID card, I have your fingerprints or whatever, some way to identify you uniquely. Every four years we have an election. We have this parliamentary democracy. We have to put somebody up there who is a representative. Except the question is how many people do they represent? Like this is the larger delimitation question. But also who gets to vote as part of that? Today in the modern world, we have things like a dual citizenship. We have things like you have to prove residents in that place that you live, right? But what then is proof of residents? What if I'm a rentee? Does somebody who owns property but living the US have more of a right to vote here? Then somebody who does not own property but lives here. Right? So I have to walk on the roads, but I don't have a house. The value of my house is not dependent because I don't own the property. What do you think? I mean, I know this is not related to the question of an autarchy. But I think if we do implement a world with more and more open borders, it will call into question this topic with a citizen. So I agree that a person who lives abroad and really has little connection or stake in India should not be voting. And vice versa, that a person without citizenship, but who lives here, has a stake here? Should be allowed to vote. I've not thought deeply about it. I just have one funny story to tell. Have you heard of the amazing voting system of the city of London? No. The city of London is one square mile. It is the world's financial capital. It's an amazing place. But they have almost no residents, OK? All the buildings are commercial buildings. So the voting rights for one of the most important municipalities of the world, namely the city of London, are given to the corporations. And the number of votes controlled by each corporation is the number of employees that they have in the city of London. Wow. I never heard of this story. OK. So that is, again, first principle, pragmatic thinking that if you actually count the residents of that one square mile is almost nobody. There'll be a couple of homeless people. That's about all. How do you implement a voting system? So you think who are the people where they have something at stake in making sure that urban public services are properly delivered for the city of London? Answer is the corporations. OK. So we want the corporations to vote. Do you want one corporation, one vote? No. There is a corporation with a larger number of workers than a smaller number of workers. So each worker in the city of London gets a vote. But that vote is controlled by the CEO. So we should be willing to be eclectic and analyze the world and solve problems. We should not be ideological one man, one vote. This is quite radical. I've never heard something like this. Oh, this has been going on for hundreds of years. This is an ancient arrangement at the city of London. See, this is British fragmatism. This is where the British do best. That they look at the world. They think about it. They argue about it. They come up with solutions. I think about this on the question of secession as well, that if enough-- I mean, we would like to respect your eye to liberty. If enough people-- to have liberty, enough people come together and say look we want to create a new state. These are our borders. And we want to be autarchic or we don't want to trade with the rest of the world, whatever. Should that quote-unquote state simply comply? I want to flip it around and combat it from a different direction. I'm a great admirer of the European Union. That's not what you just described as not the path, how they got there. But it's a phenomenal arrangement. That it's a nice mixture where personal preferences and the laws of Portugal are different from the laws of France. But they are all together in a certain kind of semi-country. So it's not as claustrophobic as the United States, where all the states are forced to be the same to a certain extent. So there's this nice mixing up that they are separate countries and they have their own privileges or what they can legislate. And yet it's full globalization. There are no barriers. There are people who wake up in France, take a bath, put on their clothes, get into a car, drive across into Germany. They don't even have a copy of their passport and there are no barriers on the roads. And they go work in Germany and they come back home to France. And there is no friction, there's no difficulty, there's no complexity. All that taxation, everything works out properly. So I think of the European Union as the lab of globalization. It's the most advanced concept of rethinking the word country in an interesting flexible way. That they didn't go on a path of conquest. I mean several times they did. Napoleon tried to conquer all of Europe. Hitler tried to conquer all of Europe. But then they understood that they're trying to make one big country is messy. Instead of having many, many countries. And Denmark is different and Norway is different. And they're all cute and funny and silly and they have their own languages. They have their own funny rules and procedures. And then you create an ultra-globalization between all of them. The people move freely, the goods move freely, the capital moves freely, the services move freely and you're done. So you get this right balance of a solution to the problem of autarchy. So I think of that a lot. I think of it as a role model. That's the kind of thing we should be aspiring to. That our dream should be that one day we'll have that between India and Sri Lanka, between India and Nepal, India and Bangladesh. See, in a way, the movement of Nepali workers is a bit of that. It's a de facto freedom of movement. And this is the kind of thing we should be studying as how to rethink the concept of the nation state and step away from all this autarchy. Yeah, this is super interesting. I think this whole project of building liberal democracies is a very new idea. It's just 300 years old. And in a couple of centuries, they look back at this time as the early formative years of what it means to politically build in a way that maximizes liberty. And so I agree with you. I think that all of these things are under flux and under question. One final question. I'm going to try and defend the Trumpian approach here and say that when I play the role of somebody who's leading the state, I'm a bureaucrat or politician in power, there is a game theory question. So like nuclear weapons have done quite a bit in this game theory where I know mutually assured destruction and that factors into my math on the way that I'm going to be able to do it. And I think that's the way I'm going to do it. And I think that's the way I'm going to be able to do it. Let's break it into two problems. One is for the private persons and the other is for the government. So let's start at private persons. If you're a corporation, it is very important to understand the world. Okay. In the olden days, you could just be a free rider. You could take the world for granted. But in this messy modern world, it has become important to understand the world. And then you think about how you are organized globally. Who are your markets? Who are your production sites? Where are your critical employees sitting? Are you sufficiently diversified? Do you have too much of a production in China? Do you have too much of a research in Germany? Okay. So global diversification, global resilience is a very big issue. And this is the private incentives and information processing of every country. Yes. This is not a call for action for any state. But for every private person, this is indeed now an issue. 20 years ago, we thought China was going to work. And then came Xi Jinping and ruined the China story. We thought China was going to work well and become normal country. And in fact, it didn't. And now we have Trump. And so now we have a second strange country in this world. So every corporation has to think that, oh my god, what could happen to Japan tomorrow? Now you have to take a call at how much do you trust the liberal democratic regime of Japan? How much do you trust the liberal democratic regime of Australia? Okay. There's a paper idea there. We should be taking the rankings of the Freedom House and the V-Dem indexes. We should be writing predictive models to create 95% confidence intervals. For how bad can a collapse of democracy in a certain country be? Yeah. So that as a corporation, I can form a better sense that look, I need to be more concerned about South Korea. Because their characteristics are now lining up so that there is a five year chance of a collapse of their liberal democracy. Okay. So these are relevant and correct considerations for every corporation. And the answer for every corporation is more globalization, not less. Okay. You can't trust any country. So you need to be very deeply globally diversified. Adjuvates. Yeah. You've got to be diversified. Don't trust in the United States because the United States can go to hell as they have. Okay. Now you come to the government. For governments, it's a narrow problem, which is really this military industrial base and the defense equipment. And there again, the answer is multi-layered resilience that don't have a single vendor who is in Finland. Have two vendors, one in Finland, one in Taiwan. Okay. So then now you've got to make these reasonable judgments. Write down probabilities that what is the chance that in five years Taiwan will be grabbed by China or that the Kuomintang will become a pro-Chinese government in Taiwan. Put up a number to it and then start doing a risk management approach for your military industrial base. So I'm objecting to the word self-reliance. I'm saying there is a problem and the answer lies in sophisticated diversification and resiliency through risk management. Rather than the expenditure of self-reliance. Okay. Like I was saying to you that if you insist on making your own chips like my God, the amount of money that you have to spend is just way too much. Yeah, I hear what you're saying. I have listened to every episode of everything is everything, some of them twice. And have always wished to sit across from you and ask you a bunch of questions. So I'm very grateful that you made the time to do this. I was hoping to structure this in a way that I asked you questions that you've probably not had put forth from other folks on other podcasts, something like that. Also not an economist, so not to economics heavy. But I hope you get a chance to do this again. So maybe like 20 episodes from now and maybe not on autocracy but something else. But I hope you had fun. I had a lot of fun. Thank you Ajay for coming on the podcast. Thank you Deepak. This is great.