A limited strategic partnership with the US is beneficial for India, the UPA, and the Left.
Shyam Ponappa / New Delhi April 3, 2008
An exciting move if ever there was one: the Tata group’s acquisition of Jaguar and Ford. Unthinkable some years ago. Yet it is credible now, especially after Tata Steel’s acquisition of Corus.* Real potential for cooperative gains, although there are risks.
Meanwhile, in India’s public space, the bid for nuclear fuel and technology is faring badly. Caught in an almost surreal wrangle between the Congress-led UPA and the Left, with the BJP in a huff playing irresponsible spoilsport. What insights might a collaborative approach bring to public policy? Here’s a look from the perspective of game theory.
Many real-life situations can be viewed as non-zero-sum games, including the UPA-Left contention on the 123 Agreement, because one side’s gains do not necessarily have to be at the other’s expense. Game theory provides two critical insights to understanding how cooperation can lead to better outcomes. These are:
a) When players make rational choices in their perceived self-interest, their actions perversely lead to a ‘least-benefits’ or Nash equilibrium. This non-cooperative equilibrium is the norm for selfish strategies, and neither party can benefit by changing its strategy unilaterally. This is where the UPA-Left discussion on nuclear access is today.**
b) By cooperating, both parties can get beyond least-benefits equilibrium to greater gains. This is the principle of coalitions and obviously well known. However, analysing the elements of the situation can help to show how to get past deadlocks.
The Nuclear Impasse
Figure 1 shows the present impasse between the Congress-led UPA and the Left.
Assume that the Congress/UPA’s objective is to maximise access to nuclear fuel/technology, i.e. to move right along the horizontal (X) axis. Assume the Left wants to minimise India’s alignment with the US; this decreases down the vertical (Y) axis. The UPA and the Left both want to be as far along the right axis as possible, while the Left wants to be as low on the vertical axis as possible.
Legitimate access to nuclear fuel and technology is possible solely through the Nuclear Suppliers Group (NSG). For this, it is necessary to have America’s approval, i.e. some degree of partnership. For instance, if the Left wants fuel and technology from China or Russia, this is not feasible without the approval of the US, the International Atomic Energy Agency (IAEA) and the Nuclear Suppliers’ Group (NSG) of 45 countries.
India’s starting position in Figure 1 is where the X and Y axes meet at non-cooperative or Nash equilibrium, with no access to fuel or technology. This position can improve only if the UPA and the Left cooperate and move away from this point.
The UPA’s initiatives on the 123 Agreement demonstrate a willingness to partner the US. The extent of partnership must be sufficient to elicit US approval; otherwise, the denial of access to fuel and technology continues, and to other equipment and technology barred by the US because of this. This includes, for example, anti-terrorism surveillance equipment that can be deployed high above the earth. Unless the Left is willing to accept the extent of partnership indicated by movement up the vertical axis to the level of the 123 Agreement in Figure 1, there will be no access to these technologies.
If the Left accepts a pragmatic partnership with the US, the next steps are IAEA and NSG approval followed by the US Congress’s approval, as indicated in the diagram. As India has already discussed supplies with France and Russia, these are the likely first sources of supply. Thereafter, Japan might be a supplier, although a supplier’s nationality may be moot, e.g. Toshiba owns Westinghouse Electric. Arguably, China could also be a supplier, which the Left could want.
If the Left is unwilling to tolerate US partnership, nuclear access is simply infeasible, as shown by the lower line indicating unrealistic wishful thinking.
What if the contention between the UPA and the Left is taken as not being primarily about nuclear access, nor about the degree of partnership with the US, but about the perceived effects on the electorate, i.e., staying in power? If this were so, game theory could help point the way to collaborative solutions that not only provide access to nuclear fuel and technology for India, but also improve both parties’ electoral prospects.
As mentioned above, contending on whether or not to partner with the US defeats the aim of obtaining nuclear fuel and technology access, because a degree of US partnership is absolutely essential. However, what if the UPA were to limit the extent of partnership it advocates with the US? Might the Left back away from opposing all engagement with the US? If both sides do cooperate, they could possibly:
a) engage in a partnership with the US to access nuclear fuel, and
b) increase their chances of electoral gains by redefining their objectives.
Assume the UPA and the Left agree on the partnership with the US that is central to breaking past nuclear technology isolation, and set themselves other objectives. Suppose that the Left’s goal is lower prices through reduced indirect taxes, customs and excise. Suppose the UPA’s is maximising nuclear energy capacity. Figure 2 shows a possible solutions space, with L being the Left’s response function, and U the UPA’s.
The Left’s ‘Bliss Point’ could be at BL, and the UPA’s at BU. The line joining the points (where the indifference curves around the bliss points are tangential to each other) defines the potential collaborative Contract Curve, and a point C on it is best for everyone (Pareto optimal). What if there are constraints such as a maximum level of partnership with America (once China supplies fuel?), or a tax cut requirement that exceeds the UPA’s initial offer, but is nevertheless acceptable? If the constraints are as shown, the point S provides the best-feasible-solution. While not optimal, it is much more beneficial to both parties as well as to the public interest than non-cooperative equilibrium, because the stalemate denies nuclear access while engendering higher risks of worse electoral outcomes.
Whatever the Left and the UPA decide to do, the Tata group has shown the way to the high road to potential cooperative gains.
* For an evaluation of Tata Steel’s acquisition of Corus using game theory, see ‘Tata’s Corus Buy’ (BS, Nov 2, 2006), available at: http://hamada-diagram.blogspot.com/
** For a description of why not cooperating while acting selfishly in one’s perceived best interests results in the worst outcome, see ‘Prisoner’s Dilemma’ at: http://www.lsd.ic.unicamp.br/~oliva/papers/free-software/BMind.pdf