Regular readers of this blog know of my interest in constitutions and how they affect the prosperity, or lack thereof, of nations. A recent conversation with a friend prompted this line of thinking about constitutions and how they matter in our everyday life even though it may appear that constitutions are rather remote and cannot possibly be relevant in our lives.
People act, individually and collectively, within institutional constraints. These institutions are created by and embody rules that have developed historically partly through some social evolutionary process, and partly through some correctly or incorrectly conceived constructed processes.
How people play a game depends on the set of rules that the players know, observe, and rationally expect others to follow. The extended social order in which people live and work is also a game played according to a set of rules, not all of them explicitly set down on paper or deliberately constructed through some directed rational process.
In some cases, the broadest set of rules — the supreme law of the land — are written down and used as the superstructure within which all other more detailed rules are framed. The classic example of this is the US constitution which went into effect around 1789. Another example is the “Government of India Act 1935” which the British created to rule India and which forms the core of the later constructed Indian constitution.
The prosperity of a nation depends ultimately on the aggregate behavior of the people constituting it. People’s behavior, in turn, is determined by the rules and regulations that constrain and motivate behavior. Thus, the constitution in its role as the set of meta-rules has an unavoidable impact on everything that takes place on the ground.
The constitution is to a nation what character is to a person. A person’s nature or personality determines how a person behaves or responds to circumstances. Under similar situations, people respond differently based on their personalities. In a sense, the constitution defines the character of the collective we call a nation. Individuals act in response to the incentives they face, incentives that are created by the institutional settings which are ultimately derived from the constitution.
At the highest level, the constitution determines which of our activities will fall within the economic sphere and which in the political sphere. In the economic sphere, the production and consumption of goods and services are determined by voluntary exchange in markets. In the economic sphere, competition is between and among producers, and consumers choose what and how much they will buy. Activities that are removed from the economic sphere have to be allocated to the political sphere. When the government assumes control of production and distribution, consumers have to resort to political action to obtain what they want. Who gets how much of what then is a political question, not economic.
It may seem like a stretch that the choices we make in our day to day living are somehow related to a constitution that was framed decades ago (1935 for India) or even centuries ago (as in the case of the US.) But it is nevertheless true. For example, we behave differently under scarcity and abundance. If telephone services are scarce, people respond rationally by bribing the telephone provider. Whether something is scarce or not is partly technologically determined but more significantly determined by government policy. Government policy to restrict telephone services to monopolies (public or private) is constitutional, which then results in high prices and limited supply, is a consequence of the constitutional mandate to the government to interfere in the economy.
What citizens are allowed or prohibited to do is constrained by the policies that the government enacts, and the policies have to be consistent with the constitution. If the constitution were to change, the ultimate rules of the game would change, the policies (the derived rules) will change, and thus the action on the ground (the play of the game) will change, and therefore the outcome will change.
One important example. Suppose the constitution were to change so that the government was prohibited from restricting entry into the education sector. The government would then not be able to prevent for-profit institutions from running schools and colleges. That would expand competition, reduce prices, increase supply and improve quality. It would also eliminate the massive corruption that is currently present. It would also remove all the competition among various groups to get a part of the scarce supply. It would have an impact at the family level: parents and children would not be so desperately stressed.
Of course one may argue that a policy change to allow private sector into education does not need a constitutional change. Unfortunately, that kind of policy change is unlikely to happen because those in government have an incentive to prevent private sector entry. If they allow private sector entry, it will remove one of the most profitable source of bribes that they currently enjoy. Only a constitutional change will bring about policy change.
Prosperity has evaded India even after 1947 and “self-rule.” It can be argued that this is because India is not really free since it is still governed by a constitution that is primarily a set of rules designed by a colonial power to rule over its subjects. A change in the constitution is a necessary precondition for altering the rules of the game, and therefore the game itself and its outcome. The link between the constitution and what happens on the ground every day is robust and observable.