Source: IDEAS AND INSTITUTIONS | ISSUE #50
Analysis
The Power of Narratives and the Power Over Narratives
There is a history to this. Between 2011 and 2014, the prevailing narrative on the state of the economy was overwhelmingly negative. Of course, this was not without reason as the economy was indeed going through difficulties—inflation was high, private investment had collapsed, and growth had slowed down. However, the results of the 2014 general elections were so remarkable that one wondered if the state of the economy alone could account for such a dramatic shift in public opinion. The seat count of the leading party in the ruling coalition, the Indian National Congress, fell by about eighty percent. It was a moment of learning for the political class. Narrative management, which has always been important in politics, has become even more of a priority.
A narrative is not just “a story or a description of a series of events,” but also “a particular way of explaining or understanding events.” Each narrative implies certain choices about suitable ways of presenting, explaining, and understanding reality. Human beings understand the world through narratives and the contestation around them is central to social life. Politicians operate in a climate of opinion, and the effective ones shape this climate to their advantage. They don’t just take the verdict of the people, they also make it. They push narratives that are consistent with the logic of their political success. However, it is useful to distinguish between two goals that a ruling party may be pursuing while painting a rosy picture of the economy.
The first goal may be, as mentioned above, to help the ruling party win elections. This is predicated on the idea that for any given economic reality, spreading a more positive narrative will lead to more votes in favour of the ruling party. Such efforts need to be understood in the context of electoral contestation, where the ruling party may be trying to counter negative narratives from the parties in the opposition.
The other goal for pushing an optimistic narrative about the economy could be to create positive momentum for the economy. This is based on the premise that, consumers, producers, investors, and others are more likely to take decisions that will boost the economy when the narrative around the economy is more positive.
When we see a government or a ruling party trying to manage the narrative about the economy, one response could be to simply oppose such attempts, expecting them to allow the marketplace of narratives to take its course. No ruling party can afford to take this approach—if its opposing parties are active participants in the marketplace of narratives, it is compelled to participate. However, there is something to be said about such an approach when it comes to governments. One could argue that ethics of civil service demands that the government formally remain neutral in the marketplace of narratives, even as its political leadership makes statements that serve their electoral interests. But this neutrality is with respect to party politics, and not economic outcomes. Since civil servants pursue socio-economic outcomes, neutrality to narratives is not likely to appeal to those who think narratives shape the outcomes they are pursuing. If they hold this belief, they might feel compelled to shape the narratives on the economy. So, a more detailed consideration of this question of how narratives shape outcomes is needed to inform the ethics of the government trying to shape narratives.
Unfortunately, there is a lack of serious research in economics that examines the linkages between narratives, economic behavior, and economic outcomes. Economists have only recently turned their focus to narratives. Economist Robert Shiller’s 2019 book, titled Narrative Economics, explores the impact of popular stories and narratives on economic events and trends. Shiller argues that narratives about economic phenomena can significantly impact consumer confidence, investment decisions, and ultimately, the economy. He compares the spread of news with that of a virus and explains how the public’s economic behaviour is influenced by stories about market booms, busts, and financial crises. Shiller further analyzes episodes like the Great Depression, the dot-com bubble, and the real estate boom and bust, to suggest that storytelling and popular beliefs contributed to these economic phenomena. Though Shiller’s book is short on evidence that shows the impact of narratives on economic outcomes, it is an invitation for researchers to work on this issue. As Shiller suggests, there is still much work to be done to understand the causal linkages between narratives and economic outcomes. Most examples in his book are from extreme events that led to booms and busts in the economy.
It is self-evident that people act on the basis of their beliefs about the consequences of their economic decisions, but it is not clear to what extent these beliefs are shaped by narratives. Consider an investor who wants a certain rate of return on investment at a given level of risk. Their belief regarding whether or not a particular investment would meet their expectations would depend on their own experience and observation, which will be limited to the domains in which they are active and knowledgeable. They may also consider narratives about larger economic conditions, for which they must rely on others. Projections of returns are typically based on some assumptions about macroeconomics and the long-term prospects of the economy. Although understanding based on personal experience might be less susceptible to narrative management by the government or anyone else, the understanding of the broader economy is necessarily based on secondary sources. It is here that the government’s efforts to shape the narratives might have some effect.
Going back to the discussion on the two goals being pursued, we can see how things might get complicated. Narrative management for electoral purposes and for pursuing economic objectives employ the same tools. The ruling party could argue that its “positive spin” on the country’s economy was intended for the larger good, and accuse the opposition of putting their own political interest over the country’s. The latter, meanwhile, can argue that attempts to paint a gloomy picture is in the country’s interest and that the “truth” serves public interest better than “propaganda.” But it is important to note that even narratives driven by the opposition are rife with propaganda, albeit in the opposite direction. That is how politics works—most parties and leaders indulge in propaganda that suits their purpose while claiming it to be the truth. In such a context, it is very difficult to define and make objective ethical demands on a ruling party. How, then, should we think about these efforts to shape the narratives on the economy?
First, both the government and the ruling party must see the limitations of narrative management as a tool to bring about positive economic outcomes. The research on how and to what extent narratives alone shape economic outcomes is quite patchy, and more careful thinking is needed. India’s experience in recent years also gives us cause to rethink the role of narratives. Despite many years of attempts to present a triumphant narrative to attract investments, both domestic private investment and foreign investments have not picked up. Similarly, despite almost a decade of talking up India as an attractive venue for manufacturing, there is little evidence of improvement on this front. On the other hand, the economy has done better on other fronts—for instance, the Indian economy achieved a large and sustained rise in exports of services after the pandemic. So, perhaps the expectations from narrative management should be tempered. It is more crucial to address underlying issues in the economy, which in turn will ultimately improve the experience of various stakeholders.
Second, an excessive focus on narratives can lead to perverse policy choices. It has often been argued that governments in India direct a disproportionately large part of their health expenditure to capital expenditure for new hospitals even as they underinvest in primary health, because hospitals offer greater visibility. Similarly, if the focus is mainly on narratives, it may lead the government to extend disproportionate support to larger businesses, rather than foster competitive markets that function well and are regulated efficiently. In the production-linked incentive schemes, it seems subsidies are being mainly directed towards larger firms to encourage large, visible investments. For a continent-sized country like India, such an approach may lead to poor aggregate outcomes even as they yield high visibility investments that the government can show as successes.
Third, the government and the ruling party should be careful about the types of narratives they try to manage, and the instruments they use. While it might make sense to promote a general sense of optimism about the economy, it is important to enable a free marketplace of narratives on the problems and challenges that could prove detrimental for the economy. It is also beneficial to discuss, openly and freely, potential gaps in the government’s growth strategy and economic policies. Since information and knowledge are dispersed across the economy, this is the only way to learn and make course corrections. There may be times of crisis and uncertainty when a government may need to go the extra mile to sustain confidence in the economy, otherwise public opinion may fall for more negative narratives that then become self-fulfilling. For instance, there are times when uncertainty about the health of banks increases, and the central bank and the government must communicate aggressively to maintain confidence in the system. Otherwise, a lack of confidence can lead to a run on the banks that can precipitate bank failures. But even in such situations, instruments like deposit insurance are essential to maintaining confidence, and narratives can at best complement them. The main examples from Shiller’s book come from situations such as these. Further, when it comes to instruments of narrative management, persuasion is better than delegitimization and coercion. It will not diminish the incentives for analysts to offer constructive criticism. In any case, resources that are commanded by the ruling establishment are much larger than any resources available for independent analysis.
Fourth, there should be some correspondence between what is really feasible and what promises are being implied in the narratives being pushed. The past has shown that the breakdown of this correspondence could lead to a breakdown of trust in the economy. During the boom years in the 2000s, the narrative was that India’s growth trajectory was going to last for decades. Specifically, there was a narrative that investors should invest, and the Indian state would solve the problems that may arise. But that did not come to pass in many sectors, especially in infrastructure. The promise of the availability of inputs such as coal and gas, stability of policies, reformist trajectory of regulations, and other expectations were not met. As the correspondence between the broader narrative and the reality on the ground broke down, there was a crisis of confidence in the economy and private investments collapsed. In the subsequent years, many firms failed because of their overly optimistic projections. They had borrowed to invest based on certain expectations and later found themselves unable to service their debts. That overhang lasted many years.
Fifth, it should be clear that the use of government machinery to shape the narrative for the purpose of electoral politics is unethical. Instruments of narrative management are often such that it is difficult to tell if an electoral or a larger economic objective is being pursued. However, there are occasions where this distinction is clear and raises important ethical questions. For instance, in February this year, the union government tabled a White Paper on the Indian Economy in Parliament that not only defended the government’s record on the economy, but also tried to discredit the previous government’s performance. Upon reading the paper in question, one is unlikely to be left with the impression that its intention was to serve the large economic objective. It seemed to be aimed essentially at scoring political points for the ruling party. A white paper tabled by the government in Parliament is not supposed to serve this purpose. Undermining such norms is harmful for the republic even if the ruling party may have something to gain electorally.
So, there are a number of questions that a ruling party and a government need to consider while looking to shape the narratives about the economy. They should have modest expectations about what can be achieved simply by pushing a certain narrative. There may be instances—such as times of crisis and uncertainty—when the government might need to substantially complement policy efforts with narratives to boost confidence, but for the most part, narrative management is secondary to the actual work of building state capability, making reasonable economic policies, and creating a political economy settlement that enables investments. An excessive on narratives may lead to perverse policy choices, emphasizing the more visible achievements even if they come at the cost of aggregate improvements. Further, if the government is too aggressive in its approach, it might crowd out ideas that could have allowed for course corrections, especially with respect to its economic strategy and policies. When governments push a certain narrative, they are also sending a message to the markets. If the message lacks credibility, the government’s credibility could diminish over time. Finally, if, in the process of pushing a narrative, the integrity of institutions is undermined, much harm can be caused to the republic in the long run.
Review
Shrinking Cities
Alan Mallach’s book, titled Smaller Cities in a Shrinking World: Learning to Thrive Without Growth, addresses the opposite problem—urban governance in a situation of negative demographic trends and out-migration. The book points to an increasing global trend—declining rates of population growth, declining populations on an absolute basis, and the challenges of thinking about cities that shrink rather than grow.
Cities experience organic growth and decline over time due to various factors. Economic downturn, natural disasters, and better employment elsewhere may contribute to shrinkage. Conversely, cities may grow if they offer economic and social opportunities. Mallach’s book is timely due to the global trend of declining fertility, to the extent that many countries like are now below the replacement level. While a reversal of this trend is possible, it is increasingly likely to play out in other countries over the next few decades. A 2023 Lancet report found that fertility rates were above replacement levels in 94 countries and territories in 2021, about 46.1 percent. By 2050, the report predicts, fertility rates will be below replacement levels in about 75 percent of all countries and territories.
Mallach makes a convincing argument that this trend will increasingly require that cities be viewed as shrinking spaces rather than growing ones. Though his book caters to an audience in the United States, it is replete with examples and case studies from Japan, China, Thailand, and many European countries to burnish his insights and arguments. For those looking for technical solutions, Mallach does not offer many. This is a book about shifting perspectives, and, as Mallach calls it, removing the “stigma” associated with thinking about a shrinking city.
The beginning of the book makes a case for the “end of growth,” arguing that slowing rates of population growth and decline in some cases will lead to a decrease in demand and consumption. This, according to Mallach, will require a shift from current ways of thinking. In the past century, economists and policy makers have assumed that growth—“of population, of the built environment, of human and financial capital, and of all manner of worldly goods”—is natural and desirable. These assumptions will require reconsideration. He argues that by 2050, shrinking cities will be the norm rather than the deviation. Shrinkage is not just a numerical adjustment, he observes. It leads to damage to the city’s social fabric, its economy, and its resilience.
In order to cope with this shrinkage, it is important to understand the causes behind it. To do this, Mallach takes the reader on a brief history of economic thought associated with cities as growth engines. He argues that as cities went from “marketplaces” to “market economies” with the dawn of modern capitalism, growth became intrinsic to the logic of the city, and decline became a problem or a stigma. This is evident in the discourse surrounding cities in the United States that have undergone population decline due to a downturn of the economic activity that initially drove their growth. Reasons for this include changes in sources of energy (coal replacing water), migration and its effects (African American migration to the U.S. north and subsequent “white flight”), or global competition from European and Japanese manufacturing.
Mallach paints a revealing picture of this global phenomenon of populations drops cities across the world. European cities, especially post-Soviet countries, have, according to him, fared worse than the United States. De-industrialization hurt Western Europe to an extent that the term “shrinking cities” had already been coined in Germany by the 1980s. In Eastern Europe, . Between 1989 and 2021, 82 percent of Ukraine’s cities saw a decline in population. Simultaneously, the largest cities in most of these countries saw a growth in population. We are also witnessing a hollowing out of smaller cities in favour of larger ones, a phenomenon that is taking place in South Korea, where thirty-one out of eight-five cities saw a decline between 2002 and 2019. Population loss also occurred in 500 cities in China between 2000 and 2019.
“Aggressive projections expect that over fifty nations will move to negative population growth in the next three decades,” in addition to the twenty-two in 2020, Mallach writes. Within countries, he expects larger, more dominant cities to grow at the expense of others, but this will also be subdued due to the secular trend of declining populations.
Mallach elaborates on the demographic transition at the heart of this decline by taking the reader through the stages of demographic growth and decline. He provides explanations for the reasons of current declines—reductions in infant mortality, the increasing availability of birth control, the declining influence of pro-natalist forces like religion, and the increasing costs of raising children. As a consequence, by 2018, almost half the world’s countries had population growth rates below the replacement rate of 2.1. Not only has there been a decline, according to Mallach, it is also likely to be “sticky.” All data indicates that, irrespective of pro-natalist policies governments may adopt, the Total Fertility Rate (TFR) does not increase beyond a temporary blip.
Mallach then moves on to the other major driver of population change—migration. The survey of causes and explanatory factors is impressive, and Mallach explains how rural-urban transitions, economic restructuring, wars, and disease create powerful motivations to move, and therefore have significant effects on the demography of cities.
However, the main point of departure for the arguments in the book are based on reducing population growth. While Mallach provides an informative exposition on the role of migration on population change, migration is a constant factor affecting the growth and shrinkage of cities, and as such, is less salient to the imperatives of thinking about shrinking cities. Mallach points to the interesting phenomenon of the increasing disparity within countries between the “center” and the “periphery.” For example, thirty-nine out of forty-six prefectures in Japan saw out-migration, with Tokyo’s drawing the largest in-migration.
What does a shrinking city look like? Mallach devotes considerable time to this question. He posits that as cities decline, they become “thinner”—fewer people occupy the same land and land-use becomes less intensive. Buildings are abandoned and demolished, and fewer commercial properties serve residents. Though he maintains that shrinkage depend on local factors, Mallach is able to provide three broad typologies. The first is the declining American city where vacancies lead to entire neighborhoods being abandoned over time. They take on a “bizarre quasi-pastoral quality, in which open fields are interspersed with houses, some vacant, and some still occupied.” As buildings are vacated, they are often demolished in the hope of reducing housing supply and stimulating the real estate market. This almost never works and leads to the creation of “urban prairies.”
The second typology is being witnessed in parts of Europe, especially in Germany, Poland, Bulgaria, Latvia, Slovakia, and others, where multi-family housing or apartments are dominant. As units in these buildings become vacant, apartment buildings slowly become empty. This has a different spatial consequence, unlike the single-family housing plots in the United States. In Germany, buildings are progressively demolished as they become mostly empty and their remaining residents are moved to buildings with higher occupancy. Unfortunately, it is usually the elderly who are forced to move.
The third typology is that of Japan, where single-family homes are common, but smaller and closer to each other. However, Japanese authorities have fewer powers to enter into private property and demolish homes, unlike their US counterparts. Though houses become vacant, they may not necessarily be demolished.
Mallach points to the larger socio-economic consequences of population decline and the shrinkage of cities. Many of these are predictable, though maybe a little deterministic—a fall in aggregate demand, a reduction in consumption, a drop in demand for real estate, housing, and public amenities, except for the increase in requirements for the aging population. The spatial consequences of shrinkage will depend on policy responses to the specific reasons for shrinkage. One constraint on policy responses that Mallach highlights is the expected decline in local government revenues once the city starts to shrink. This will have very different consequences for cities based on how they generate revenue today. Chinese cities, for example, may find it much harder to adapt than those in Europe. Absent a change in how revenue is generated and collected, shrinking cities will struggle to find the resources to repurpose their infrastructure to adapt.
The next part of the book is forward-looking. Mallach highlights climate change, technological change, and political instability as three critical considerations that will seriously impact how cities will adapt to his phenomenon. He then explains how to think about shrinking cities, insisting that this is not a technical problem. The key to allowing cities to design adaptive strategies, according to him, is to end the stigma around population decline and shrinking cities. He cites numerous examples where city officials have had to face public blowback and suffer negative political consequences for proposing pragmatic solutions. Countries like the Baltic states and Japan have moved towards strategies of managing decline rather than trying to “solve” it. For the most part, however, the stigma associated with planning for shrinkage prevents any further steps from being taken.
Tangible solutions he proposes include “localized resilience,” building urban food systems, promoting urban agriculture , and improved utilization of land resources to mitigate climate change. Each of these is based on his assessment that as climate change, technological change and population decline interact with each other, cities will have to become more resilient locally to thrive. Lastly, Mallach argues that none of this is possible without successful community building. He insists, repeatedly, that technical solutions are downstream of the social and cultural norms needed to employ strategies to adapt to shrinkage.
Mallach’s arguments present a challenge. The facts are hard to dispute. He lays them out starkly and in great detail. He is also convincing in his argument that population decline may be irreversible in the near future, and that consequently, most cities, if not all, will shrink in the coming decades. Yet, it is easy to see why his call to accept decline is challenging, both socially and politically. Growth is not just an essential human imperative, it is also a positive one. While this does not take away from the necessity of pragmatic measures to manage a demographic transition, doing so at scale, as Mallach rightly points out, requires the social and political articulation of a strategy to manage decline.
This places policymakers in uncharted waters. While Mallach makes a case for the rethinking of systems and designs on a localized level to build resilience, doing so at the scale and pace that he seems to imply is not feasible without a larger consensus. The challenge is, therefore, to articulate a pragmatic agenda to manage undeniable facts of population decline, without deterministically accepting that the essential human aspiration for growth is being defeated by demography.
A second, related issue with Mallach’s argument is perhaps his emphasis on the non-technical. While he proposes ideas for what a shrinking city could look like and what ought to be the focus, his proposals underplay the solutions that cities have already taking to manage shrinkage. For example, steps taken by German cities to move residents to apartments with higher occupancy and demolish vacant apartments is a policy measure that requires greater attention. The second half of the book places, perhaps, too high an emphasis on the importance of cities to undertake greening and climate mitigation, and not enough on more efficient use of land for the variety of uses that a dynamic city requires. The mechanisms that cities can use to redevelop vacant land will become of increasing importance as cities shrink, and also require more creativity and innovation from the professions of planners, designers and architects.
Upon reading this thought-provoking book, one is left feeling that some essential aspects of what to do about shrinking cities have been de-emphasized. This however, does not take away from the timeliness and importance of the work. The book does not address India in much detail but the arguments posed here apply equally to us. While Indian cities will continue to struggle to manage population growth for the next few years, demographic decline has often been sharper than initially projected in many countries across the world. Therefore, we must also begin to comprehend and confront the problem of population decline, and think of what the process of urbanization in India will look like in a period of flat to negative growth.