RBI ‘groupthink’ dynamics and the risk of policy errors

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What’s ‘groupthink’?

It’s a term coined by Yale research psychologist Irving L Janis, who carried out extensive work in the area of group dynamics. After reading a retelling of the 1961 Bay of Pigs fiasco involving a planned US military invasion of Cuba, Janis wondered how so many smart leaders in the US (including then President John F Kennedy) could have made so flawed a decision. His theory: groupthink.

But what does the term mean?

In a 1982 book, Groupthink, Janis defined it as “a mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when the members’ striving for unanimity overrides their motivation to realistically appraise alternative courses of action.”

It’s when members of a group “manufacture consent”, and even suppress their own inhibitions, so as not to break from what they believe to be a consensual view. In a 1991 paper, ‘Irving L Janis’ Victims of Groupthink’, Paul ‘t Hart, Professor of Public Administration at Utrecht University in the Netherlands channelled Janis’ definition of groupthink as “an excessive form of concurrence-seeking among members of high prestige, tightly knit policy-making groups. To preserve the clubby atmosphere, group members suppress personal doubts, silence dissenters, and follow the group leader’s suggestions.”

Does ‘groupthink’ prevail in the RBI now?

No, but the risk of that has been heightened after the recent change of RBI Governors. Remember: even though Urjit Patel said he was resigning for “personal reasons”, it was clear, after the tension between the RBI and the Finance Ministry, that he no longer enjoyed the confidence of the government. It signalled that the government wanted complete policy-making congruence between the FinMin and the RBI.

Is congruence on policy matters a bad thing?

Not if it comes about as part of an organic process. But after the government brandished its ‘brahmastra’ – in the form of Section 7 of the RBI Act – in order to establish its authority, the RBI is seen to have capitulated, even on monetary matters that are at their core in the domain of the central bank. And without prejudice to the new RBI Governor, it doesn’t bode well for any assertion of functional autonomy on his part.

Going into an election year, a government wary of a slowing economy will look to keep the liquidity taps fully open, and perhaps even dip into the RBI reserves as it seeks to step up spending. A central bank on inflation watch will have to, as Raghuram Rajan said, “do what it has to do”. But given that the power balance is weighted against the RBI, and the government isn’t shy of asserting its authority, only a ‘courageous’ Governor would break stride and tighten money supply. Far easier will it be to yield to ‘groupthink’ and do as the government wants.

Not at all. As Janis and leadership researcher Leon Mann noted in their 1977 book Decision Making: A Psychological Analysis of Conflict, Choice, and Commitment, “Many historical fiascoes can be traced to defective policy making on the part of government leaders who receive social support from their in-group advisors.” Among the examples of groupthink that Janis cites: Neville Chamberlain’s appeasement of Adolf Hitler, and President Lyndon B Johnson’s decision to escalate the Vietnam war.

Securing the RBI’s manufactured consent may be convenient for the government, but it comes at a price.

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