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Economic Super-Power Status: Not Necessarily A Contrary View

-- By Dr Ramesh N. Rao

Readers of HamaraShehar have already been given an informative and well-supported two-part analysis by Dasu Krishnamoorty in response to the publisher’s prompt on whether India can achieve super-power status. In this broader and more philosophical piece I will try to adumbrate upon some of the basic dynamics that drive a people and a nation to achieve a higher status, to “advance”, to “progress” and to become powerful. Note that I have put the words advance and progress within quotes. Those quotation marks indicate that advancement and progress have and come with, costs. Those costs, if not foreseen, or if not managed carefully, can lead to disaster and the decline of an economy or a nation. Those costs, if not controlled, are like the unbridled pride of an individual before his fall.

No individual, family, community, or nation can ignore one of the basic “problems” of life: how to sustain it. From hunting and gathering, to more sedentary agricultural economies, to industrialisation and now to information economies, human beings have sought to fashion systems that would help sustain life through production and consumption. In modern times, we have sought to fashion these systems based on some grand economic theories: Runaway capitalism and totalitarian control of the economy are two ends of the spectrum of modern economic philosophy. In runaway capitalism we will have a system that is basically or supposedly guided by market forces. It will lead to a kind of survival of the fittest: those with the knowledge, the information and the money being able to manipulate the market for their own ends. Markets don’t guide themselves. Markets are made up of people and some people have more power and some less; and the more powerful will shape the rules and regulations that manipulate market forces. The idea of a completely unregulated market is the pipe dream of a wild-eyed libertarian or a mindless anarchist. In reality, markets are controlled, guided, shaped to a lesser or greater extent all over the world by governments, corporations, global financial institutions and so on.

In a totally controlled and regulated economy, like in the former Soviet Union, we have the opposite of the totally free market. That the Soviet Union collapsed of its own weight and that the constituents of that Union are now floundering economies to a greater or lesser extent, are grim reminders to the equally wild-eyed Marxists who want to bring equality among peoples, liberate workers in chains and officiate over the withering away of nations. The warning, once again, is that idealistic and grand theories don’t work in practice. Ten-year plans, five-year plans, rolling plans, state-owned farms, industries and banks were attempts, idealistic attempts, to bring “equal happiness” to all but which led to the unequal misery of most. In India, we still have many of the wild-eyed Marxists who warm academic chairs in prestigious universities and who wish to see the withering away of the Indian nation. Almost fifty years of state-controlled and managed industries, banks (controlled for about 30 years) and central and state planning and plans led to the “license raj” that robbed India of the creativity and entrepreneurship of its peoples. Vast and behemoth bureaucracies sapped the nation of its resources and still continue to do so.

Liberalisation, Globalisation and Swadeshi: In the modern and present Indian economic and political context what is being discussed is not as much as capitalism or socialism as is “globalisation” and “liberalisation”. This, as we know, is because of the “reforms” that were begun in 1991 by the Narasimha Rao government, with Dr. Manmohan Singh as Finance Minister and chief proponent of liberalisation. Those reforms agenda, in turn, was due to the political and technological changes in the world: the fall of the Soviet Union, an uni-polar, one super-power dominated international dynamic, the coming of the internet and the use of computers, the growing economic clout of Communist China and so on.

Liberalisation, as the former head of Procter & Gamble, Gurcharan Das notes, has led to major changes. He says, “Although the reforms after 1991 have been slow, hesitant and incomplete, they have set in motion a process of profound change in Indian society. It is as important a turning point as Deng’s revolution in China in December 1978”. However, in a note on “Swadeshi”, Ashok Chowgule , of the Chowgule Group of Industries notes that the Swadeshi philosophy is the one that keeps the interests of the country supreme. For him, as many others, swadeshi would help promote full internal liberalisation and achieve selective external liberalisation. Under internal liberalisation, the “license raj” would come to an end and domestic industries would be able to set up production capacities as per their own plans. There would also be no entry barrier to corporations wishing and willing to enter new fields. This would increase internal competition and would ensure that the customer would get better products at competitive prices.

According to this plan, selective external liberalisation would mean that foreign collaboration and investment would be permitted only in selected areas. In terms of national priorities, investment in consumer sector would not be permitted. However, this “selective” entry agenda would neither be attractive to foreign investors, nor would the present WTO regime permit it.

Yet, this policy of internal liberalisation and selective external liberalisation, Chowgule points out, was the policy followed by all the Asian Tigers, including Japan. He points out that, for example, Japan has more than eight major car manufacturers, unlike the big three in the US because these companies were protected from imports and were able to learn and absorb manufacturing and marketing techniques. Under the Nehruvian socialist, planned economy model local entreprenuership got stifled and led to the red-tape bound “license raj”. Comparing the Japanese automobile industry with the Indian one, Chowgule says that only two companies in India were allowed to set up plants of about 30, 000 cars per year, whereas Japan’s eight manufacturers could produce one million cars per year. Because of such low capacities in India, car model upgrades and newer models were uneconomical. This, in turn, meant small-scale ancillaries industries’ growth too was stifled.

For industrialists like Chowgule, the external liberalisation that India is pursuing will harm domestic industry. With little experience in international trade and competition, he feels that domestic companies will face unequal and deadly competition. He gives the example of Hindustan Lever (part of the Anglo-Dutch conglomerate) which has gobbled up local competition to the extent that the Tatas were forced to merge their toiletries unit with Lever.

There are other restrictive clauses in the WTO regime that puts developing countries at a disadvantage. All kinds of social clauses (no child labour, minimum wages, environmental standards, etc.) are written into the WTO program which makes it difficult, if not impossible, for Indian industries to compete effectively in the international arena. To point out to the West that their industries thrived and were built with the sweat of slave labour and child labour will be brushed off as past history.

Chowgule points out that sugar imports is restricted in Europe to protect the domestic industry which produces sugar from beet. India, which produces cane sugar, a cheaper product, is shut out of the European sugar market and therefore unable to start new export-oriented plants. The net effect is that developing countries are denied export outlets and are forced to liberalise their import trade. The US and Europe also provide enormous subsidies to agricultural producers leading to artificially low prices and thus to the shutting out of imports from developing countries. Hence, Chowgule cautions that “It is high time that all those who are deeply committed to the well being of India awaken to the facts of trade diplomacy and not fall into the trap that is being set by the developed countries.”

While Chowgule is right on many points, what he does not address are some of the inherent weaknesses in the Indian economy and social and economic practices. Does the WTO regime tell Indians of how much corruption can and should be allowed and acceptable in society? Does it say that Indian manufacturers can siphon off billions of rupees through bank debts? Does it say anything about shoddy goods being palmed off in search of quick profits? Does it say anything about the evasion of taxes by all and sundry (as piquantly pointed out by Dasu Krishnamoorty)? As a recent McKinsey report points out, Indian manufacturers/industry are ok with planning but poor in execution.

Gandhian Economy: “Gandhian economists have developed an economics that replaces the assumption of perfect mobility of labour with the assumption that community and family stability should have priority. Gandhian economics replaces the axiom of nonsatiation (more is always better) with a principle of limits, the recognition that there is such a thing as ‘enough’ material wealth. Gandhian economists recognise that consuming more than ‘enough’ creates more problems and than it solves and causes consumer satisfaction or ‘utility’ to decline rather than increase”, so proclaim the organisers of “The Other Economic Summit”. The centrepiece of Gandhian economic thought are human beings and not the material prosperity or scarcity. Gandhi wanted to elevate modern economic philosophy from its materialistic base to a higher spiritual plane where actions are by social objectives rather than through self-considerations.

According to Romesh Diwan , there are six basic concepts in Gandhian economics. These are swadeshi, bread labour, aprigraha, trusteeship, equality and non-exploitation. These are not mutually exclusive. Gandhi defined swadeshi as self-reliance with the proviso that it encourages co-operation between producers and consumers and promotes both efficiency and moral progress. Similarly aprigraha is non-possession, which is defined in a social context; either no one has anything which is trivial and irrelevant, or all have access to and or possess the particular thing in question. These concepts, according to Diwan, have further meanings such as values-in-use, values-in-exchange and values-in-threat. Gandhian economics encourages the distinction between self-defined-work and stranger-defined-work.

All good and well and what E. F. Schumacher has so eloquently argued in his “Small is Beautiful”. But can this be the model that India can pursue in its quest or aspiration to be a “super power”? Gandhian philosophy is workable only when everyone else in the world pursues it. If it were merely India to pursue such a plan, then the Indian nation would no longer be in existence. No, it would not wither away, according to Marxist projections, but be balkanised and/or gobbled up by the world. Gandhi’s altruism, moral philosophy and goodness did not stop India from being dismembered at independence. And Nehru, his hand-picked man to guide India’s destiny, discarded Gandhian economics lock, stock and barrel. So, those who argue that Gandhian economic philosophy should guide the nation should beware of what they are proposing.

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