What Kautilya would say

Some aspects of the relevance of the Arthashastra in the contemporary world

Balbir S Sihag

Kautilya understood some basic human tendencies and limitations inimical both to national security and prosperity—such as bounded rationality, time inconsistency and shirking (or moral hazard)—and devised measures to handle them effectively, efficiently and ethically. He was also aware of the problems caused by budgetary constraints. National security demanded expansion in spending on infrastructure and in military capability. But an increase in taxes was considered counterproductive, as that would retard long-term economic growth, make taxpayers discontented and prone to be turned against the king.

That meant a poor nation with a smaller tax base could not finance the building of the requisite military capability. It certainly could not match the power of a rich nation and consequently would become an irresistible target for attack by stronger nations. He argued that power breeds more power but the challenge was: how to initiate the process with limited resources. His genius lay in offering insights for meeting the challenge—that is of maintaining independence and becoming prosperous.

First, according to Kautilya, economic prosperity strengthened national security and brought happiness to people, but it was not sustainable unless the gains were distributed fairly.

Second, he emphasised the role of good institutions for internal stability. He considered rule of law (and not rule by law), essential for protection of private property rights and constraining the predatory or extortionary behaviour of rulers and bureaucrats. Internal stability, in turn, was essential for acquisition of knowledge and accumulation of capital.

Third, he emphasised good governance, which meant clean, caring and competent administration so that resources were not siphoned off from building infrastructure to personal uses.

Fourth, according to him, a judicious blend of moral and material incentives was necessary to elicit optimum effort from the king at the top to the herdsman at the bottom of the economic pyramid.

Fifth, changes could be brought only through co-operation and co-ordination and not through confrontation and coercion.

Sixth, it was a king’s moral duty and in his self-interest to behave like a loyal servant to his royal people.