Welcome to the seventeenth issue of Ideas and Institutions – a fortnightly newsletter from Carnegie India’s political economy team.

This issue includes an essay on the role of organizational adaptation in the rise of the BJP as a hegemonic party and a review of the book Rethinking the Economics of Land and Housing.

The Role of Organizational Adaptation in the Rise of the Bharatiya Janata Party (BJP) as a Hegemonic Party

On October 3, the Aam Aadmi Party (AAP) government held a trust vote in the Punjab Assembly. It was a symbolic demonstration of strength by the six-month-old government. AAP has alleged that the Bharatiya Janata Party (BJP) has been trying to topple the government by conducting another iteration of Operation Lotus in the state. Operation Lotus refers to the wide variety of tactics that the BJP uses to get support from legislators of other parties without running afoul of the anti-defection law. Perhaps the phrase was used for the first time in 2008, when the party conducted such an operation to form its government in Karnataka.

Such operations have intensified since 2019. In September, eight of the eleven Congress party legislators in Goa joined the BJP. Since the BJP was already in power in the state, this did not lead to any change in the government. But the consequences for state politics are monumental, especially because this is the second such mass defection in just over three years. In 2019, most of the Congress legislators had defected to the BJP. Earlier this year, the Shiv Sena split and the faction with the majority of legislators took power in Maharashtra in coalition with the BJP. The BJP secured fewer seats than the Congress in the 2018 state elections in Madhya Pradesh but was still able to form the government in 2020, when twenty-two Congress legislators quit and joined the BJP. In 2019, another operation was conducted to dislodge the coalition ruling in Karnataka, clearing the path for the BJP to come to power.

The BJP has emerged as a dominant party at the national level, but it does not enjoy dominance in most of the states. It harnesses its powers at the national level—financial advantage, control over enforcement authorities, the power to influence the governors, etc.—to deploy pre-election and post-election tactics that help it secure or sustain power in the states. India’s constitution enshrines a federal structure in which the union government is much more powerful than the states. It has the power to impose President’s rule, reconstitute the states, regulate economic activities, and intervene in many other ways. It also has more fiscal powers than the states. So, national level dominance by a party can be quite consequential for gaining power in the states.

But it would be a mistake to take a purely legalistic view of this issue. The main source of power for a dominant party is the support it enjoys from the people. The BJP received 37.4 percent of votes in the 2019 elections. To interpret this result, we must consider the fact that the second largest party, the Congress, received 19.5 percent votes and that the BJP received more votes than the Congress party and the next six largest parties combined. Since the opposition is fragmented, even 37.4 percent votes translate into considerable power. In this unipolar politics that has emerged since 2014, the BJP is able to deploy many of the tactics because no one else seems to be enjoying the kind of popular legitimacy required to push back against the party.

The BJP has not just accommodated lateral entrants from other parties. It has also been accepting of other types of lateral entrants, giving some of them senior positions soon after they join the party. In the present government, other than the prime minister, there are twenty-seven cabinet ministers from the BJP, holding charge of forty-seven ministries. From these, five ministers are lateral entrants, and they lead ten ministries, including key ones like foreign affairs, railways, electronics and information technology, civil aviation, power, petroleum and natural gas, and housing and urban affairs. These include four former civil servants—Dr. Jaishankar (became a cabinet minister in May 2019, and joined the party a few days later), Hardeep Singh Puri (joined the party in 2014, became a minister of state in 2017 and a cabinet minister in 2021), Ashwini Vaishnav (joined in 2019, became a cabinet minister in 2021), and RK Singh (joined in 2013, became a cabinet minister in 2014). Jyotiraditya Scindia entered the party during Operation Lotus in Madhya Pradesh in 2020 and was made a cabinet minister in 2021.

In contrast, Atal Bihari Vajpayee-led BJP made little accommodation for lateral entrants. Among the many BJP leaders who held the positions of cabinet ministers in that government, only two could be placed in that category. PR Kumaramangalam had joined the party just a year before he became a cabinet minister. Arun Shourie could also be seen as a lateral entrant when he became a cabinet minister in 1998. However, these were exceptions and easily understandable in the context of the party’s cadre-based organization. Kumaramangalam was from a state where the party was quite weak, and Shourie was probably acceptable to the cadres because he had been an ideological fellow traveler of the party.

In the world of corporations, there are those companies that grow well organically—i.e., by expanding their operations—and those that are able to grow inorganically—i.e., by buying and amalgamating other companies. Similarly, in the world of politics, not all parties are well-suited for inorganic growth. Distinctions of organization-types matter in all walks of life, as organizations compete based on the strengths of their own type while exploiting the weaknesses of other organization-types. These interactions define successes and failures in any competitive realm, be it business, politics, or any other realm of human association.

The BJP has traditionally been a cadre-driven party. The cadres are bound together by ideological coherence and an organizational structure. While there have always been conflicts within the party on certain issues—for instance, on the issue of caste, there are both traditionalists and modernizers in the party—there is some coherence to the party’s ideology. Further, there is an organizational structure in which members can find their place, with an internal logic governing a member’s rise within the organization. An influx of senior leaders from outside is unusual for a party like this. Giving such lateral entrants key positions in the BJP-led governments crowds out opportunities for members who have worked in the party for many years.

At present, four out of the twelve BJP chief ministers—Himanta Biswa Sarma (Assam), Pema Khandu (Arunachal Pradesh), Nongthombam Biren Singh (Manipur), and Manik Saha (Tripura)—are lateral entrants. It is true that the BJP does not have strong cadres in some of these states and would therefore have struggled to achieve organic growth. Still, it is a departure from the party’s preferred mode of mobilization and leader selection.

In this context, another major change that the party made was to capitalize on the zeitgeist following its successes in the 2014 and 2019 general elections, by conducting nationwide membership drives. The drive held in 2019 is said to have added 70 million members, taking its total membership to 180 million. While the veracity of such claims is difficult to verify, for a cadre-driven party to conduct such a large-scale membership drive in itself suggests a shift in the organization’s mobilization strategy. The BJP seems to have moved towards a hybrid of cadre-based and mass mobilization strategies. Thus, while the party cadres and members of associated organizations of the Rashtriya Swayamsevak Sangh family continue to play an important role, there is a conscious effort to directly mobilize a large number of members beyond these cadres. The party is also deploying, directly or through its surrogates in mainstream media and on social media, various strategies to continuously mobilize support at a mass scale.

Perhaps this ability to add so many new members, to pursue mass mobilization, and to appoint lateral entrants at senior positions stems from the same organizational transformation. The BJP seems to be transforming from a party built on an ideology to a party built for hegemony. The party seems to have a multi-pronged strategy to achieve and sustain its dominance, involving transformations in how its organization is structured, how it mobilizes support, how it interacts with allies and opponents, and how it governs. In a previous issue of this newsletter, I had noted how the BJP-led union government has used welfare expenditure to reach out to different sections of voters. The increasing agility in the organization of the party seems to be another aspect of its broader strategy to transform itself into a hegemonic party.

For a party founded on an ideology, such transformations need not imply abandonment of its ideological commitments. They might be adaptive responses to the realities of Indian politics. Since there are natural limits to any ideology, to achieve and sustain hegemony, a party needs to incorporate a variety of worldviews and interests and manage the contradictions that arise. It would be glib to say that all those who join the BJP automatically adopt its ideology or to suggest that ideology simply does not matter. While the lateral entrants tend to talk the talk to reassure the long-time party members, worldviews are not so easily changed. This comes across once in a while when one of these lateral entrants says something that is different from the party’s ideological line. So, it must take considerable organizational ability to maintain such flexibility and to manage the emerging contradictions in a party founded in ideology. The leadership of PM Modi might be papering over the differences, which may come out in the open later. Perhaps, in the coming years, the limits of this agility will be tested.

For now, these strategies seem to be working to a large extent. It is not easy for the Congress to rebuild in Goa or for the Shiv Sena in Maharashtra. Although there are exceptions, rebuilding after such setbacks can take a long time. The organizational flexibility of the BJP to break its opponents and absorb the breakaway factions, to pursue relentless mass mobilization, and to take in a large number of new members, imposes a disproportionate cost on its adversaries, which include its former allies. However, these strategies do not assure continued success for the BJP. George Orwell once wrote: “Whoever is winning at the moment will always seem to be invincible.” Many hegemonic parties have lost their dominant positions—from the Congress in India to the LDP in Japan to the PRI in Mexico. Like all parties, the BJP is also vulnerable to change.


—By Suyash Rai

Understanding the Economics of Land and Property

“…Land is permanent, cannot be produced or reproduced, cannot be ‘used up’ and does not depreciate.” – Rethinking the Economics of Land and Housing (2017) by Josh Ryan-Collins, Laurie Macfarlane, Toby Lloyd, and John Muellbauer.

It is difficult to find good, readable explanations of land as an economic input to other markets like housing, finance, and agriculture. Lack of attention to the area is puzzling, especially in the last decade, as policies related to land and property markets were significant reasons for the Global Financial Crisis. Rethinking the Economics of Land and Housing (2017) by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane, and John Muellbauer fills this gap by examining land markets in developed economies, the linkages between land and modern finance, the relationship between housing prices and wealth inequality, and the difficult choices in housing policy.

The book covers a lot of ground, but there are some themes that are particularly relevant to India in its current state of economic development. The first is the explanation of how land as an economic good has specific characteristics—immobility and perpetuity—that lead to downstream features exhibited in the political economy. The second is an explanation of the idea of “economic rent” with respect to land and the inefficiencies rent maximization behavior in the land market leads to. Another important theme of the book is the relationship between land and finance and that between land prices and credit markets.

The specific attributes of land

The authors begin by pointing out that land as a factor of production is best understood as “space and the occupation of that space over time.” Due to this characteristic, land is clearly different from other factors of production. First, land by definition is immobile. Second, the supply of land is inelastic and also eternal. This means that in most cases, the value of land is not determined only by its current use value but also includes the value that controlling such land will provide in the future. Land prices therefore reflect people’s expectations of future economic activity.

The authors argue that land also differs in other aspects from other factors of production. For example, they say that physical space becomes more desirable and is not subject to the law of diminishing returns: ". . . estimates suggest that a 10 percent increase in incomes leads people to spend about 20 percent more on space in houses and gardens. . . .” For this reason, according to the authors, the technological boom has not reduced the significance of land but has accelerated a shift in the relative economic importance of different types of land use.

The third major feature of land, according to the book, is its specific vulnerability to expropriation. Because land is immobile, landowners seek to protect their land from expropriation by seeking political power. The historical development of constitutional democracy as a mechanism that protected landowners from taxation exemplifies this fact.

Land and “economic rent”

The discussion on “economic rent” in land is perhaps the most significant aspect of the book. The authors explain that since every piece of land is essentially unique, control over every piece of land is monopolistic. Landowners can therefore benefit from their use of land unrelated to the costs of bringing it into production. And, since, over time, unowned land becomes scarcer, rent is determined more and more by locational value and less so by the investment the landowner makes for its use. In a growing economy, therefore, it is possible for landowners to capture almost all the benefits of growth by increasing rents as the economy grows.

In addition, the ability to extract rent is also distortionary as it incentivizes over-allocation of capital toward land relative to other productive uses. Therefore, the ability to capture rents is not just intuitively unfair but also inefficient. Urban centers that are successful often see soaring land prices that often drive away valuable human capital as well as productive enterprises, undermining the success of the city.

This monopolistic characteristic of land markets, along with the propensity to generate economic rent, creates a natural tendency toward market concentration and absorption of a disproportionate share of growth.

Land, finance, and wealth

This book argues that as land values in developed economies like the U.K. and the U.S. continue to increase, the “distinction between the use value of land or property . . . and its market value as a financial asset . . . is becoming blurred.” The share of mortgage lending in these economies has increased significantly since the 1970s, highlighting the degree to which land has become financialized. Why do the authors consider this a problem? They cite other economists to argue that because of this trend, “. . . land and house prices are separating themselves from growth and incomes in the wider economy.”

The authors argue that banks essentially create credit and money to lend against existing land and that this has inflationary effects on land and property prices, which then requires borrowers to borrow more to become landowners or homeowners. This in turn leads banks to issue more credit, and so on. The authors show that at least in the U.K., “relatively elastic credit supply” has been the major cause of housing price increases in the last thirty years. This easy credit, according to them, is the primary reason why land and housing prices have diverged significantly from the much slower income growth.

Conclusion

Each of these discussions has relevance for India. Indian metropolitan cities have some of the most expensive real estate markets globally, and policymakers continuously grapple with issues of providing housing and infrastructure at affordable costs even as the economy continues to grow. The political economy incentives of balancing property rights while reducing the accrual of economic rent plays out in discussions over decentralization and municipal governance. In this regard, this book provides a good theoretical perspective on the economic incentives of different stakeholders and the difficulties of choosing policy alternatives in the land and property market.

—By Anirudh Burman