The biggest challenge before the makers of Union Budget 2015 is to push for capitalism that has a human face. ‘Market economy’ is a good-sounding term, but its implications must not hit the already disprivileged
With the Budget approaching, thoughts are increasingly turning to taxes, incentives and measures to boost the economy. There has, however, been little debate on fundamentals like the ends of economic development and the methods and institutional structures for achieving these. This is unfortunate. Fundamental goals determine policy and the latter, specific measures to achieve these which, otherwise, are like running repairs on roads which do not provide long-term solutions.
One would be told that the issues of goals, policies and institutional structures have been discussed threadbare since the days of Adam Smith and then Karl Marx, as have been the respective merits of capitalism on the one hand and socialism/communism, on the other. This is true. What concerns this writer is the sharp decline in the frequency and decibel levels of arguments in the public space. The exchanges have been confined to the precincts of seminar rooms and pages of academic publications. In public fora, one only hears loud hallelujahs to the market economy and its marvels, the many-splendoured corporate millennium to which it shall lead, and feverish denunciation of state intervention in economics.
The reasons are well known. The collapse of the Soviet Union and the economic system that sustained it and China’s swing from Maoism to the market, has cast a shadow over dirigiste economic development. The consumer culture, a spawn of the market, and the emergence of a huge and growing middle class, has shifted focus from debate and reflection to the means of satisfying the desire for possessing objects and enjoying leisure. Finally, a chorus celebrating the market and its masters and denigrating all views to the contrary has followed the growing financial starvation of academic institutions and unattached research foundations. This in turn has followed a decline in State funding and the emergence of massively endowed private institutions offering much higher remunerations, is producing.
The understandable, however, is not always the desirable. Unalloyed confidence in the doctrine of the market’s marvels and the brand of capitalism behind its elevation to the status of an economic religion, in unwarranted in the context of the Great Depression of 1929 and the prolonged economic crisis it followed. The many recessions since then, and continuing massive crisis that hit the American and European economies in 2008, have further underlined the point.
Nor is globalisation the panacea. In Globalization and its Discontents, Joseph Siglitz writes that he had witnessed “firsthand the devastating effect that globalisation can have on developing countries, and especially the poor within those countries.” Stating that he believed that “globalisation — the removal of barriers to free trade and the closer integration of national economies” — could be a force for good and that it had the potential to enrich everyone in the world, particularly the poor,” he added: “ But I also believe that if this has to be the case, the way globalisation has been managed, including the international trade agreements that have played such a large role in removing those barriers policies that have been imposed on the developing countries in the process of globalisation, need to be radially rethought.”
All this raises three questions for India. What is wrong with capitalism, in which market economies are anchored, that makes it vulnerable to periodic crisesIJ Can this vulnerability be remedied and, if so, howIJ What kind of path to economic development should India adoptIJ Those seeking answers will find Ramgopal Agarwala’s India 2050: A Roadmap to Sustainable Prosperity a very interesting read. It unfolds at two levels — that of raising fundamental questions relating to capitalism and the market, and that of prescribing measures to reform capitalism and ensure sustainable prosperity for India by 2050.
Mr Agarwala, who has had a long and distinguished innings with the World Bank, says that in India, “neo-liberalism has led to the emergence of an indecent capitalism with crony capitalism combined with reckless populism and a grave degeneration of governance”. The realisation of the goal of a better India would require giving up “the defunct doctrine of Washington-inspired neo-liberalism” and designing a “new paradigm for achieving sustainable prosperity”. He defines prosperity as “achieving by 2050, the per capita income of developed countries today which, in all probability, will also take care of the problem of mass deprivation and poverty”.
Sustainability, according to him, will be economically premised on “a globally competitive production structure with innovation as a major driver”. Financially, it would require ‘avoiding large internal and external imbalances’ and ‘speculative finance/casino capitalism with tight regulations.’ Socially, sustainability would need “opportunities for upward social and economic mobility and employment for all as well as avoidance of crony capitalism and transparent, effective and accountable governance”. Ecologically, sustainability would require “remaining within globally responsible limits of carbon emission by adopting low carbon systems of consumption and production”.
What Mr Agarwala stands for can perhaps be described as capitalism with moral content. Markets, according to him, can work efficiently if they are not captured by vested interests and are guided by a “certain moral philosophy”. The latter, for him, is a blend of Adam Smith, the first to present a coherent analysis of the market, and Mahatma Gandhi, with his values of frugality and morality. Such an approach, he argues, is essential for economic growth and social cohesion. Greed and economic crimes born of it were a major cause of the devastating crisis that began unfolding in 2008.
Capitalism is passing through a squall, a fact that came out clearly in a series of articles under the title, ‘Future of Capitalism’, that The Financial Times ran in the shadow of the continuing crisis. Mr Agarwala, who cites it, is not terribly optimistic about the future. The hurdles are steep, particularly in India where privileged upper and middle classes have a vested interest in perpetuating the present system with its vast disprivileged underclass providing them with cheap services.
Things have been compounded by a tendency to imitate American lifestyles, the corruption of democracy, and hijacking of the market, by money power, and the poverty of political leadership. Externally, the rise of China poses a serious challenge. Yet, Mr Agarwala is unwilling to give up and pins his hope the newly emerging middle class youth who have to be convinced that they would be the worst sufferers if India founders.
One does not know how things will eventually pan out. But Mr Agarwala raises issues and makes points that need to be pondered.