August 23, 2005

Only way, revisited

Vikrum Sequeira responded to my Only way piece with this.

I have a few responses. But first, I should say that few things are more stimulating than a back-and-forth like this -- and I also include there most of the comments to that "Only Way" article -- done without resort to snide remarks and insinuations. These are big debates, with strongly-held and well-reasoned positions on every side. They are best carried forward the way people (in the comments) and Vikrum have done. So thanks.

That said.

OK, Vik, what I have no argument with is this: it is extremely problematic to compare India with East Asia. You’ve explained this far better than I can, so I will leave it there.

As for this: your assertion that the Indian government embarked on the 1991 reforms to help the poor is incorrect.

Yes, the trigger for the reforms was the balance of payments crisis; and yes, the link to poverty was a political afterthought.

But that doesn’t change my opinion about the need for reforms. In my opinion, whatever the system was that we had followed since 1947 simply wasn’t addressing the misery in which such a lot of Indians lived. This is what I meant when I wrote about the "fundamental" reason for reforms. By 1991, the system itself was creaking badly, subject to increasing questions – and the balance of payment crisis was one symptom – and therefore, something had to change.

Yes, the Indian government didn’t start reforms to help the poor, but then Indian governments rarely do the things I would like them to do!

You say, you are failing to recognize some of the impressive achievements of the pre-1991 governments.

You’re right there. I don’t mean to paint a picture of complete failure, and I should have been more careful not to give that impression.

For example, even though we overlooked the importance of widespread primary education, our emphasis on higher education in our early years is the bedrock on which we have become the world’s back-office, the basis for the rosy predictions for our economy.

For another example, there is the success of Indian democracy in the sense Amartya Sen meant it (and you quote him): that it worked to prevent huge disasters like the Bengal famine.

But there’s another side to this very Sen argument – which is about India’s indifference to the condition of its people. This led Sen to also say: "[E]very eight years or so, more people in addition die in India – in comparison with Chinese mortality rates – than the total number that died in the gigantic Chinese famine [of 1958-61]."

So we don’t have great famines that kill millions. But we have steady deaths that, over time, do kill millions. Seems to me something has failed.

Food self-sufficiency: It is one of those great Indian ironies (TM) that we are self-sufficient in food, even export it, and yet have people going hungry. The problem is that those people don’t have the purchasing power to buy that food that we are self-sufficiently producing. What price self-sufficiency, then?

And the Green Revolution: Norman Borlaug's intervention in the 1960s saved us from great disaster, undoubtedly. But I don't know how to credit that to socialism, except that it was a supposedly socialist government in place then that invited him to come do his work. (And this is apart from the downsides of the Green Revolution that people are starting to speak about now). To me, the way to consider the Green Revolution is as a greatly effective response to a terrible crisis, that’s all.

Nomenclature: sure this wasn’t a socialist state by definition, and yes, we didn’t do such things as land reform with any seriousness. But we called ourselves socialist. And for convenience in argument, it makes sense to refer to our "socialist" past (pre-1991) as opposed to whatever we are following now. Although I’m happy to use "pre-reforms" and "post-reforms" if you like.

I would also like to underline your emphasis of the fact that no state is truly a free market, and that many sectors of the US economy, for example, receive state support.

Finally, thanks for recognizing the central point of my article: that "the only way" is suspect.


Anirudh said...

Good one.

Ravi said...

If India was a socialist country because we had nominally socialist rulers, is it correct to say that the former East Germany was a democracy because it was called the German Democratic Republic? Can we go on to conclude that "democracy clearly wasn't working" (this line of reasoning is hardly original- I got it from Chomsky). The French revolution collapsed in a bloodbath. Do liberty, equality and fraternity mean nothing because Robespierre presided over a reign of terror?

The Indian republic was never a socialist state. The definition of socialism is that workers must control the means of production. This never happened in India or anywhere else in the world after the collapse of hunter-gatherer societies (perhaps in Barcelona, briefly, during the Spanish civil war and in isolated Polynesian islands). In a communist state the state (previously captured from the capitalists by a proletarian revolution) functions as a dictatorship and controls all means of production. This never happened in India either. At the peak of Mrs. Gandhi's raj the Indian public sector contributed less than 45% of the country's GDP.

Free market capitalism has also not been tried anywhere in the world. In any event, no country of any reasonable size (say five million people) ever industrialised itself through free market capitalism. All the European countries had high trade barriers during the industrial revolution as did America at a slightly later stage. Likewise the East Asian miracles were predicated upon significant government intervention and controls on capital (and frequently the brutal suppression of labour by the state). Japan's three trillion dollar postal service is government owned and South Korean law prescribed the death penalty for capital flight out of the country into the nineteen eighties at least. It is only after their industries and populations were at a comparitive advantage
that these countries usually saw the virtues of "free trade".

The percentage of public spending as a percentage of GDP in India is much lower than any "advanced country". After seventeen years of Thatcherism public spending in Great Britain was 42% of GDP (exactly the same as seventeen years before - so much for conservatives and free marketeers being for "small government) - does anyone know the figure for India (take a guess)? To the extent that the public spending corelates with state control of the economy (he who pays the piper calls the tune, surely) Great Britain, post Thatcher is much more socialist/communist than the Indian state ever was.

The debates about socialism versus free market capitalism are thus largely rendered meaningless. To take the particularly perverted system of governance practised in the Soviet Union or somewhere else, to deem it socialism because they called themselves socialists (for that matter the Nazis, fierce anti-communists were National Socialists too), and then to make a straw man comparison with the massively state-subsidised predatory economies of North America and Europe which call themselves free market capitalist societies yields nothing more than the revelation something that was not socialism had much higher growth rates for two decades (1950 and 1960) than something that was not free market capitalism and then eventually collapsed. In India the lessons are different, but this comment is already too long and that will have to wait another day and another oppurtunity.

Lastly, I seem to post a comment (rarely, in any case) only when I disagree with something Dilip has written. In actual fact, I agree with most of what he says. Very few journalists today seem to write seriously and with such compassion about urban poverty and human suffering in India and few with as much first-hand experience. Quite simply: "Thank you".


Vikrum said...


Great comments. I agree with most of what you write and like your historical perspective. I agree with you that Dilip's articles open our eyes and are often a pleasure to read.

If you have time, check out my response to Dilip's original article (this current article is a response to my response). You may find the article and the subsequent discussion interesting as it touches upon a lot of the issues you bring up.

umeshgeeta said...


One thing it has struck to me in all this commentary is constant attempt to assert that essentially American Capitalism is based on state subsidies and it is something not good; especially your assertion that "...massively state-subsidized predatory economies of North America...". I disagree with this formulation and here are the points I can muster.

1. True, Agriculture in USA is way too pampered and that needs to change. Liberal newspaper like New York Times writes editorials after editorials exhorting American Congress to get away from these subsidies. Slim passage of Cafta Trade pact (217 to 215) in House is testament to the power of Agriculture lobby; or rather Sugar lobby.

2. Big Pharma gets some protection by way of Federal government refusing to buy in bulk drugs for American people (they only do that for veterans). Those same Pharma companies sell at lesser price to Canada. Here the looser is in general American Public. Also Fed does not and can not protect these big Pharma when law suits come. Merck got the shock of $253 million in one lawsuit and 4000 such law suits are starting for Vioxx.

3. May be Nuclear Industry and some Big Oil got some subsidy in the latest Energy 2005 bill.

The reason I started with these examples is to qualify my argument. But apart from these examples, I do not see American subsidies in the bulk of industries. If you want to say companies get subsidy because they get relative free research from Universities; then that is what happens every where. If we want to say Infosys, TCS, Ranbaxy and all those shining Indian companies attained success on their own; then how can we say that Google, Yahoo, Ebay, Amazon, Genentech, Home Depot, Intel, Apple, Microsoft, McDonald, Cantor Fitzgerald, etc. got big subsidies from Uncle Sam?

I mean all these comments give the smell of underlying constant effort to downplay the ingenuity and entrepreneurship - whether in USA or in India or in East Asia. If at all anything; I would say that is the true vestige I find here with so many commentators; include you. The biggest point of reform is to unleash this spirit and freedom of “making goods, service and money” within a sound legal framework so that business contracts are done, honored and executed. Glossing over these obvious and fundamental points and criticizing Western and Asian Tiger Economies that those are not sufficiently “pure free markets”; is counter productive navel grazing. Which human enterprise is pure? Even Science has it’s Sociology and cuts the corner. All that we can do is differentiate at “macro level” or at gross level. It is nobody’s case to thump the chest saying that America has attained Pure Free Market stage. Otherwise you would not get so many editorials from Wall Street Journal about how vested interests and politicians disturb the market forces and mechanism (poster child – Telecom Policy reform of USA since 1996; America loosing it’s ground in Broadband…).

About "predatory capitalism" - do you mean to say mergers and acquisitions are bad? How else you want Capital within the society utilized in a better way? Do you mean to say American companies render people in other countries jobless? What about the largest number they do within USA when they merge companies and close many departments? That is part of Capitalism. You do not get employment to the tune of 50,000+ generated by Toyota in USA unless you are ready to close doors on some of your own people in the first place.

I wonder whether you would still call Indian companies “predatory” when Indian companies start to dominate Fortune 500 industry. Possibly the tune will change.

So my criticism is there are way too many unsupported statements about American Capitalism and Companies. There are lots of bad things about that system; but mixing those things will not help us to understand better. No point in having ideological blind spots. Post 1992 Reforms in India are necessary if India wants to fulfill the needs of her people. I assume Dilip articulated his views in that context.


Dilip D'Souza said...

Ravi, your East Germany point is well taken. Like I said, I'm happy to use "pre-reforms" and "post-reforms". You offer much to mull over. I especially like the point that free trade becomes a desirable trait only after countries have spent years with controls and tariffs and have got a degree of prosperity out of that (South Korea example).

So what is the figure for India (public spending as a fraction of GDP)?

I was bowled over by your last few sentences. Thank you. Thank you too Vik.

Umesh, you too offer a lot to think about. What I take from these posts, and this discussion, is really a confirmation of my original post: that policy must be a mix of different approaches.

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