OPINION | It's Not the Economy, Stupid: Why Politics is to Blame for India's Sluggish Growth
At the heart of our current, and past, economic troubles is the conceit and smugness of the anointed few.
A worker operates a lathe as he makes spare parts of car gearboxes at a workshop in Kolkata. (File Photo: Reuters)
The Narendra Modi government seems to be working overtime to fix the economic crisis that is growing by the day. Indeed, anything that can go wrong is going wrong — declining economic growth, sluggish exports, high unemployment (and now job losses), low domestic demand, tough business environment (the ease rankings notwithstanding), tougher taxmen and damp investor confidence. Yet, the root cause is not economic; it is political. To be precise, it pertains to political philosophy.
Keynes wrote that practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. He got it right, except that it should have been some defunct philosopher, not economist. Indeed, economists themselves, including Keynes, follow philosophers.
The philosophy that has been the cause of our grief, which perpetuates poverty is statism. Merriam-Webster describes it as “concentration of economic controls and planning in the hands of a highly centralised government often extending to government ownership of industry.” Fascism, Nazism, and communists are of course the exemplars; our system is a not as perfectly statist as, say, Stalin’s Russia, but statist it is nonetheless.
Statism is premised upon a couple of complementary principles: individuals are not capable of making correct decisions, especially when it comes to economic matters; only a few enlightened souls, knowing what is good for people, society, nations, etc., ought to be at the helm of affairs. The latter could be the politburo or the vanguard of the proletariat in the erstwhile Soviet Union, Hitler’s coterie in Nazi Germany, or Indira Gandhi’s kitchen cabinet in India. There could be differences in forms and nuances, but the foundational principles are same.
Both principles are false. For individuals are capable of not only taking right decisions but also performing miracles. As the Nobel Laureate Milton Friedman said, “The great achievements of civilisation have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionise the automobile industry that way. In the only cases in which the masses have escaped from the kind of grinding poverty… are where they have had capitalism and largely free trade.” That’s right: the richest and freest countries are those where individual liberty is cherished and protected.
As for the statist principle, there has never been, and never will be, a group of enlightened souls that can know what is in our best interest. Some clever folks may make such claims, but they are usually self-serving coteries, caucuses, and cliques; either they promote their own outlandish agendas or excel in disingenuousness, and treachery. Yet, they managed to get appointed and anointed.
At the heart of our current, and past, economic troubles is the conceit and smugness of the anointed few. They are the antithesis of Socrates who said, “The only thing I know is that I know nothing.” They know everything — or at least they believe they know everything. Worse, the ideas emanating from their ‘knowledge’ are put into practice, even though this ‘knowledge’ has more to do with ideological shibboleths than with empirical evidence.
Hubris makes matters worse: they are convinced that they can do anything and everything, even if it involves excessive state intervention and unnecessary pain. This is the genesis of the crisis in the auto sector. Some people in the power structure got convinced that the vehicles run on fossil fuels are polluting (which is a fact) and electric vehicles are not (which is also a fact), so the latter should replace the former. Period.
Now the anointed — red, pink, or saffron — are not bothered about any side effects, the correctness of the processes involved to get the results they desire, and other facts. For example, electricity in India is most thermal, coming from the plants burning coal, the most polluting fuel. In effect, electric vehicles would be ultimately burning more coal.
More importantly, policy makers ignore the fact that change and technology upgrade have their own dynamics; the best and most painless way is to let things happen, to allow — to paraphrase a political cliché — the economy to take its own course. When that is allowed — as it was largely during 1991-2004 when economic reforms took place — the effects are salutary.
Typewriters made way for computers, pagers for cellphones, features phones for smartphones, and long is the list of change we have seen in our lifetime. In every sphere of life, the best changes have been natural — occasioned by technological innovation, powered by (mostly private) enterprise, and streamlined by free market.
But, always fearful of ‘market failure’ and disdainful of fat cat capitalists, policy makers keep tilting at windmills. When they are not trying to expedite cleaner cars, they are campaigning for price controls everywhere (it is spreading from healthcare to the FMCG sector), imposing tighter regulation everywhere, and burdening wealth creators in one way or the other. In the process, they end up intimidating businesspersons and scaring away investors.
When their quixotic measures make the body economic sick, they come up with palliatives, often steroids, but never cure, which is reform. But this can happen only if there is serious rethink on the morality and rightfulness of statism. That’s not happening.
(The author is a senior journalist. Views expressed are personal.)
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