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perspective

Economic & Political Weekly EPW January 31, 2009 35

A Fald Wold vw

Amit Bhaduri

on ull capital account convertibility to in-

tegrate the Indian nancial system com-

pletely with the global capital market, but

now he talks o insulating India. As a

matter o act, until the global nancial

crisis gripped the world, our “dream team”o policymakers including the current

prime minister, deputy chairman o the

planning commission and the then nance

minister insisted on speedier liberalisa-

tion o the nancial sector with measures

like capital account convertibility, greater

presence o oreign banks and insurance

companies with reedom to shit unds.

Now they want to take credit or being

prudent and slow in introducing reorms,

making the nationalised banks saer, etc.

Politicians may be right in believing

that public memory is short, but perhaps

they would nd that it is not that short!

Women and men in practical aairs pre-

tend to know and change posture to suit

the situation, but it should be the job o

economists to call the blu. We have not

done too well on that count. As a well-

known economist once said, “Some know-

ledge o economics is useul, i only to

guard against being ooled by other econ-

omists”. Amidst the global nancial crisisand the quick U-turn taken by our so-

called economic technocrats in the govern-

ment, I am oten reminded o the intrinsic

wisdom o this statement.

inxaud of eonom

It is remarkable that despite the inexacti-

tude o economics as a body o knowledge

which should have let enough space or

some i not several contesting economic

ideologies, over the last 20 years or so all

the major political parties in India cutting

across the spectrum rom the Let to the

Right largely converged to a very similar

point o view on economic management.

While dierentiating themselves mostly

by rhetoric, they came to subscribe to

the view that globalisation, market-based

liberalisation and corporate-led industri-

alisation are inevitable compulsions or

economic development in India. Conse-

quently, they all sought oreign investments

and unds on whatever terms, acceptedWorld Bank-IMFviews o growth and equity,

and engaged in a race to the bottom by

Based on the Foundation Day Lecture

delivered on 29 December 2008 at the Inter

University Centre or Astronomy and

Astrophysics, Pune.

Amit Bhaduri ([email protected]

) is

with the Council or Social Development, and

the Jawaharlal Nehru University, New Delhi.

It is remarkable that despite the

inexactitude o economics as a

body o knowledge, which should

have let enough space or some i

not several contesting economic

ideologies, over the last 20 years

or so all the major political

parties in India cutting across the

spectrum rom the Let to

the Right largely converged to

a very similar point o view on

economic management.

Would the current global

nancial and economic crisis give

us the courage necessary to

re-educate ourselves to view the

“logic o the market”

more logically?

A badly kept secret among econo-

mists should be shared with

non-economists. Economic the-

ory, insoar as it consists o results derived

logically rom clearly stated premises, is

mostly precautionary knowledge which

warns against unounded economic pro-

positions. Very rarely, is it positive know-

ledge or guiding policies. There is an even

more uzzy area o economic knowledge

which iners rom quantitative data

through statistical techniques and histori-

cal analogies. Such knowledge is even

more tentative, yet essential in a subject

like economics where controlled experi-

ments are impossible. With data generated

over time subject to observational error,

bias, and random shocks, we would do

well to remember the saying o the Greek

philosopher Heraclitus, a rough contem-

porary o Buddha, “It is never possible to

step twice into the same river”.

As a body o inexact knowledge, eco-nomics requires us to be intellectually

modest and that leaves little room or in-

fexible views. And yet, exactly the oppo-

site happens. Driven by ideology or vested

interests, politicians, captains o industry,

media men, spokespersons o the cham-

bers o commerce, labour unions and even

academic economists posture with abso-

lute condence, oten to mislead the pub-

lic or their own interest, and conveniently

change suddenly, again to suit their inter-

est in a changed situation. Flexibility in

views is necessary in economic policy-

making, but only i one is willing to learn

honestly also rom one’s past mistakes.

The problem with most politicians sud-

denly changing their views is that they

change only their posture, but not their

ideology. Their interests remain the same.

Otherwise, how can we explain our prime

minister tell ing a captive audience that he

oresaw the current nancial crisis 18

months ago, while on 18 March 2006 hetold a global audience that the Reserve

Bank o India would prepare a road map



perspective

January 31, 2009 EPW Economic & Political Weekly36

oering competitively avourable terms to

attract large corporate houses to the states

where they were in power. In short, the

TINA syndrome that, “There Is No Alter-

native”, gripped economic action as well

as imagination. For the traditional Let,

recent history explains part o it. The

ailure o Soviet style bureaucratic centralplanning,U-turn o ocially socialist China

and Vietnam in embracing capitalist style

policies undermined condence in old-

ashioned socialist ideas. Economic suc-

cess stories o countries like South Korea,

Singapore, Taiwan, Malaysia and Hong

Kong pointed to attractive possibilities.

Nevertheless, in the orchestrated cele-

bration o the market economy, one tends

to orget that this story is one-sided. It is

inconvenient or a pro-market economist

to remember that most countries o sub-

Saharan Arica, o Latin America, o cen-

tral Asia underwent dramatic economic

stagnation or decline or several years by

embracing the same principle o market-

based liberalisation (Angus Maddison,

The World Economy: A Millennial Perspec-

tive, Paris, 2001).

With economic history seldom giving

unambiguous answers, economic theory

has to play a critical role in making our in-

exact knowledge appear more plausible inthe service o economic ideology. The ide-

ology o the sel-regulating ree market

that came to rule the world and is com-

monly known as neoliberalism has its ori-

gin in the idea o perect competition as

the prototype market orm. We all know

markets involve buying and selling, activi-

ties which are organised under certain

rules that vary enormously, say rom the

weekly village market to the stock ex-

changes in Dalal Street or Wall Street.

Economists study the properties o the

market organisation by taking a perectly

competitive market as their point o ree-

rence. Under highly unrealistic assumptions,

which rules out, or instance, all orms o

uncertainty and banishes the unknown

uture rom the analysis, some results are

obtained. It is shown that an equilibrium

set o prices exists which simultaneously

clears all markets by equating demand and

supply. The prices in equilibrium corre-

spond to an ecient arrangement in thesense that the production o no commo-

dity can be increased urther without

decreasing the production o some other,

and no participant in the market can do

better either as a producer or consumer,

without someone else becoming worse

o. The powerul ideological metaphor

is that o the invisible hand o the sel-

regulating market leading the society o

selsh individuals to an optimum. This isindeed a most spectacular case o sel-

organisation, where neither any interven-

tion o the state nor any concern or the

collective expressed in social norms like

trust and ellow eeling is needed to reach

the optimum economic state. Margaret

Thatcher, the ormer prime minister o

Britain and the main architect o the

neoliberal world view amously echoed

this sentiment by claiming that there is

no society, only individuals.

Flaw n ‘pf comon’

However, even this mythical land o per-

ect competition is fawed on its own

terms. The optimum equilibrium that is

shown to exist under idealised conditions

does not guarantee that the distribution

o income in the society would be toler-

ably good. To appreciate its practical

implications, remember demand depends

on the purchasing power o individuals,

so a grotesquely unequal distributiono income under competitive conditions

might mean millions o children dying

rom easily treatable diseases like malaria

and TB, while most expensive hospitals in

the metropolis provide state o the art

treatment at a price which only the rich

can aord. Villages go without sanitation

and drinkable water, but selected areas o

cities might pride themselves with world

class luxury apartments and glittering

malls. And yet, by the logic o the market

any such equilibrium would still be con-

sidered optimum because it allocates

resources eciently, and the poor in the

city slums or in the villages cannot be

made better o without hurting the rich

in the cities.

A deeper logical faw is that the stability

o the equilibrium in a competitive market

is not guaranteed without imposing ur-

ther stringent conditions, and it remains

unspecied how long it would take to con-

verge to it. This is a political catch. A decision-maker in a democracy, say a prime

minister, can always say that economic

Gyan



perspective


reorms are about to produce results with-

out speciying the time horizon. Like a

dictator, the competitive market can

go on promising without delivering, as it

is without accountability within any

specied time period. In this sense the

market as an institution has no accounta-

bility except or the largely make-believeideology o sel-regulation. This is the

undamental dierence between the

market and democracy insoar as in a

democracy, there is some reckoning at the

time o elections. I need only to remind you

that market-based reorms did badly in

India on that count. The slogan o “shining

India” crashed in the last general election,

and the present prime minister, widely

considered the guru o India’s market-

oriented reorms, could not personally

win an election.

Enthusiastic reliance on the market

mechanism as the main driving orce o

ecient resource allocation and growth

by the government accentuated poverty to

create rumblings outside the electoral

process in the countryside which oten

spills over into desperate ury and despair.

More than 1,00,000 armers have com-

mitted suicide over the last decade or so.

According to government estimates, some

125 districts, spread over 12 states, andcovering more than a quarter o the land

mass mostly in the central part o India, is

aected by extremist Naxalite activities.

The dalits (16%) and the adivasis (8%), ap-

proximately one quarter o the population,

provide the main support to these move-

ments, suggesting a combination o eco-

nomic and socially oppressive actors as a

major cause. Despite near double-digit

growth or more than a decade and a hal,

available estimates suggest that more than

one-third o the Indian population live in

sub-human poverty (a recent World Bank

estimate puts nearly 42% as absolutely

poor by international standard), more

than three-ourths o the population has a

daily purchasing power o less than Rs 20

a day, nearly hal the children are under-

nourished and many crippled by under-

nourishment, anaemia is on the increase

among women, and ood deprivation in

the countryside has not decreased in the

last two decades. And all along the logic o the market has been encouraged by

government policies to work relentlessly

against the poor majority through three

major routes.

slow Gowh n emloymn

First is the extraordinarily slow growth in

regular employment. Regular employ-

ment in the organised sector over the last

decade or so grew at only about 1%, whilethe rest o the average 6 to 7% growth in

GDP came rom the growth in output per

worker or labour productivity. In contrast,

during the earlier decades, when GDP

grew on an average at less than 4%, regu-

lar employment grew at the annual rate o

2%. The recent drive to increase labour

productivity is related to globalisation. In-

ternational trade means increasing the

importance o the external compared to

the internal market, while corporations

compete in the export market mostly by

cutting costs to increase their inter-

national competitiveness. This usually

means shedding labour orce through

mechanisation. For instance, i the labour

orce in a corporation is downsized to hal

at the same wage, labour cost per unit o

output would also be halved. Let one ex-

ample suce to illustrate how this process

is working in practice. Tata Motors in Pune

reduced the number o workers rom

35,000 to 21,000 but increased the pro-duction o vehicles rom 1,29,000 to

3,12,000 between 1999 and 2004, imply-

ing labour productivity increase by a ac-

tor o our. The aggregate picture broadly

conorms to this. According to the Eco-

nomic Survey o the government o India

(2006-07), total employment in the organ-

ised sector declined rom 28.2 million in

1977 to 26.4 million in 2004, because the

much talked about growth o the private

organised sector under the reorm policies

o the government hardly compensated

or the decline in employment by the pub-

lic sector. Another telling piece o evidence

against the belie that corporate-led in-

dustrialisation and greater direct oreign

investment would promote more employ-

ment came rom the headlines o The

Times of India (7 July 2008). Long hailed

as most dynamic in these respects, a re-

cent comparison o the various states o

India suggested Gujarat and Maharashtra

have been among the slowest growingstates in terms o creating either non-

agricultural or manuacturing jobs.

With regular employment opportuni-

ties growing ar too slowly compared to

the number o job seekers, more and more

people are being pushed into the unorgan-

ised sector. Agriculture, in particular, has

become even more overcrowded. Accord-

ing to the National Sample Survey (61st

round), approximately 110 million agricul-tural workers (out o a total workorce o

400 million) ound employment or 209

days in 2004-05 compared to 220 days in

1999-2000. People desperate or a liveli-

hood join the ranks o the so-called sel-

employed in the unorganised sector, the

astest growing category, marked by long

hours o work with negligible earnings,

lack o any social security or labour pro-

tection and extensive use o child labour.

More than hal the hawkers o Kolkata,

and more than one-third o the hawkers o

Amhedabad belonging to this category o

the sel-employed are retrenched indus-

trial workers, now threatened once more

with the corporatisation o retai l trade in

this era o globalisation in the name o

economic eciency. This vast inormal

sector is increasingly becoming a reuge

or people devoid o all hopes, and re-

minds one o the hell imagined by the

great Italian poet Dante. On its gate is

written, “You enter this land ater aban-doning all hopes”.

The second reason or growing inequal-

ity lies in the style o economic manage-

ment pursued by the government. While

opportunity or regular work is growing at

a grossly insucient pace despite a high

growth rate o output, the government has

become increasingly weary o spending

more or social welare like health, educa-

tion, public distribution and social secu-

rity or the poor. Government expenditure

remained more or less steady around 22%

o GDP throughout 2000-07, with health

receiving 1.4% and education receiving

2.9% o GDP, on the average. The apparent

reasons given are lack o “money” and

poor public delivery system or social serv-

ices. However, these are supercial justi-

cations, and there is a more compelling

reason which has come out into the open

due to the nancial crisis. Globalisation o

nance made the government highly sen-

sitive to the moods o the stock marketand the nancial sentiments o major play-

ers in that market. Even ater the recent



perspective

January 31, 2009 EPW Economic & Political Weekly38

dwindling, India stil l has a relatively large

oreign exchange reserves ($250 billion),

but unlike China which has been enjoying

export surplus or several years, our re-

serves come mostly rom capital infows

exceeding balance o payments decits,

like deposits rom non-resident Indians

and portolio investments by various in-ternational nancial institutions. These

are ar more ckle in nature and can be

withdrawn at a relatively short notice i

the mood o the nancial market turns

sour. A main thrust o the pro-market

government policy has been to keep the

nancial market happy by being on the

right side o the International Monetary

Fund and the World Bank insoar as

they have a central role in shaping inter-

national nancial opinion or banks,

credit-rating agencies, and other nancial

institutions. This means ollowing their

economic guidelines in ormulating policies.

As a result, the government minimised

its welare spending by letting it stagnate

as percentage o GDP even during the

years o high growth. The cost o this

squeeze o expenditure on social secu-

rity, education and health alls mainly on

the poor who cannot turn to the market

due to lack o purchasing power and

job opportunities.

syl of indualaon

The third route is paved by the style o in-

dustrialisation the government has in-

creasingly adopted. It amounts to extend-

ing various privileges to the large corpora-

tions by the ederal and state govern-

ments, irrespective o their proessed po-

litical colour as incentives or promoting

corporate-led industrialisation. Land

acquisition by the states (land is a state

subject under the Constitution) or “public

purpose” has become its politically most

visible aspect. The central government all

along has provided the legal and logistical

support or land acquisition, and the origi-

nal 1894 Land Acquisition Act proclaiming

the “eminent domain” status or the state

was signicantly revised successively in

1952, 1963, and 1984 to give greater power

to the government to acquire land or the

deence sector, companies, cooperatives

and public sector companies. The presentgovernment has brought two related bills

(o the Land Acquisition Amendment Act,

and Rehabilitation and Resettlement Act,

both under consideration o parliamen-

tary standing committees) to extend in

many ways urther the reach o the gov-

ernment. They are all linked directly or

indirectly to a view o the model o

development or three major purposes,

namely (a) mining, (b) land or industrialsites, and (c) Special Economic Zones

(SEZs). First, consider the mineral rich

usually orested land acquired mostly

rom the tribal populations, concentrated

heavily in Jharkhand, Bihar, Chhattisgarh

and Orissa. As has oten been pointed out,

these are some o the richest lands in the

country where the poorest live.

Mnng and h poo

A piece o revealing statistics shows that

mining displaces typically the poorest in

the country, the adivasis or tribals who

constitute some 8% o the population but

account or nearly hal o the people dis-

placed in the name o development. The

state apparatus takes recourse to silent

violence in various ways. Forcibles acqui-

sition o land and dispossession takes

place oten through manuactured consent

o the gram sabhas at gunpoint to comply

ormally with the legal requirements o

the Panchayat Extension to Scheduled Areas Act (1996) relating to tribal areas.

The “public” purpose is granting posses-

sion to “private” corporations o the iron

ore rich land in Chhasttisgarh, Jharkhand,

Madhya Pradesh, bauxite rich land o

Orissa, prospect o diamond mine in Bas-

tar, etc. Memoranda o Understanding

(MOUs) between the large private corpora-

tions and the concerned state govern-

ments are seldom revealed despite appli-

cations under the Right to Inormation

(RTI) Act. The mining land taken rom the

locals at a unilaterally announced low

compensation price (that is requently not

paid) is handed over to large corporations

and industrial houses oten with support-

ing inrastructure provided by the govern-

ment at public cost by displacing more

people. A telling instance o public-private

partnership is the proposed SEZ compris-

ing 45 villages in Raigad district o Mahar-

ashtra, which has been recently rejected

almost unanimously in a reerendum heldin 22 villages. While the government had

the area under notication or acquisition

or a “public purpose”, in that very same

area agents o the Ambani companies

were privately trying to acquire land ille-

gally with direct help rom the Mahar-

ashtra government.

Is all this is done only to pursue a model

o industrialisation, or does large money

also change hands beneting our politicalclass and many bureaucrats in this process?

This is at least a part o the story behind the

phenomenal growth in corporate wealth

and dollar billionaires in the country in

recent years. Available statistics show that

in hardly our years, between 2003-04

and 2006-07 the market value o capital

o the companies listed on Bombay Stock

Exchange grew almost 300%, while until

the recent stock market crash India with

the majority o its population desperately

poor could perversely boast o the highest

number o dollar billionaires ater the

United States. The logic o a liberalised

market mechanism buttressed urther by

state power to help the private corpora-

tions is relentlessly creating unprece-

dented inequality in India along with high

growth. Sub-human poverty or millions

and billions o dollars or a handul o citi-

zens has become the name o this game

called development.

Gowh Dn by rh

For this growth process to remain eco-

nomically viable over time, slow growth

o domestic purchasing power o the ma-

jority o the population must be countered

by a compensating expansion either o our

exports or expenditure by the rich. How-

ever, because our exports exceed imports

and we buy more rom the oreigners than

we sell to them, the net contribution o the

oreign trade sector to the expansion o

demand in our economy is negative. As a

result, this anti-poor pattern o growth is

being sustained by a rapid expansion o

income and expenditure by the richer

groups in society (a maximum o the top

20 to 25%). The increasing inequality en-

tailed in such a process o high growth

means that the corporations sell their

products and realise handsome prots by

concentrating mostly on the production

o goods consumed by the richer sections

o the population. As a result, some 75%o Indians with a daily per capita pur-

chasing power o less than Rs 20 have



perspective


vir tually no place in this corporate-led

modern economy as consumers. Their

space as small rural producers or as small

businesses in the unorganised sector

also shrinks, as the goods produced or

the high end o the market can mostly be

produced only by corporations (e g, cars,

rerigerators, air conditioned malls, state-o-the-art hospitals, etc).

Thus, growing inequality and lack o

employment opportunities are coupled,

and an output composition oriented to-

wards a rich minority o this country tend

to exclude the majority o our ellow citi-

zens and oten destroy their livelihoods.

The big dams that we build, the electri-

city that we generate, the world class cit-

ies that we strive or divert even non-

reproducible natural resources. The

large corporate houses use them e-

ciently to produce and sell to the rich

protable products , but their ecient

utilisation o natural resources imply the

exclusion o the poor both as producers

and as consumers. The process o growth

is sustained by growing inequality, and

inequality reinorces growth in a mutu-

ally supportive manner. The Swedish

economist Gunner Myrdal had called it

“cumulative causation”, somewhat simi-

lar to the engineer’s system o strongpositive eedbacks, the evolutionary bio-

logist’s symbiosis between two species,

and perhaps the notion o autocatalysis

in chemical reactions.

sln of h Majoy

While all this has been happening around

us or quite some time, most o us reused

to see it. The mainstream English lan-

guage media, largely owned and control-

led by large corporate houses, condition

us continuously to turn a blind eye and be-

lieve that the virtual economy o the

hourly fuctuations in the stock market is

ar more newsworthy than the growing

inequality, despair and ury engulng

gradually the countryside. Most econo-

mists who should have known better,

uelled this perception and cheered politi-

cians in power or the rapid emergence

o India as a global economic power; and,

o course, politicians in power never tire

o congratulating themselves or theirown achievements. When the market

boomed they took credit or liberalising

the market, then as the market crashed

they took credit or not liberalising the

market! They took credit or orcing

labour market fexibity o “hire and re”

rule; when the market crashed the prime

minister begged the captains o industry

in a specially called meeting not to re

workers near the time o elections. Thishypocritical politics has been going on

as business as usual until the recent

global nancial crisis shook deeply the

condence in sel-regulating ree market

capitalism with its global reach. The

comortable thought that more economic

reorm to deregulate the market and

speedier integration with global market

would lead us rapidly towards an optimal

economic state is no longer ashionable.

Like their counterparts in the US and

Europe, pro-market reormers o yesterday

are now looking or cover; they who had

opposed it now want more supervision

and regulation o the market in India.

However, this is only passing, because as

an old English rhyme says: “Those who

are convinced against their will/Are o the

same opinion still.”

Neoliberalism has merely gone out o

sight, but not out o mind. Vested interests

crystallised around corporations are

merely on the deensive at the moment.We are still being misled to support a

model o corporate-led industrialisation

nancially helped by the state in dicult

times as the way to our economic develop-

ment, without questioning its relevance in

the Indian context. A deep-seated habit o

thinking inculcated by the globalisation,

privatisation and liberalisation rhetorics

still wants us to believe that this market

undamentalism, practising develop-

mental terrorism selectively on the poor,

will ultimately help them as high corpo-

rate growth trickles down.

sub Quon

To keep our conscience comortable, it

claims that the market can substitute or

social ethics by deciding what is protable

to produce, and who should be in charge

o production. So we no longer question

how without extensive public action and

state intervention in avour o the poor, in

this country o overwhelming poverty thelogic o political democracy o one-adult

one-vote can be compatible with the logic

o the market dictated by the rich with

many more votes with their higher

purchasing power than the poor. These

are almost subversive questions; and yet,

the ability to pose them is the rst step to

liberate ourselves rom the ruling system

o conventional economic wisdom that has

ailed us so badly despite the big show o producing precise technocratic economic

knowledge, helped by various vested

interests including the distribution o a

disproportionately large number o Nobel

Prizes to make market-oriented economic

conservatism academically respectable.

Long ago in the introduction o his amous

allegorical novel, The Animal Farm,

George Orwell had warned us that British

democracy is not very dierent rom the

totalitarian monster he was describing in

his book. Unpopular ideas, he said, can be

suppressed without the use o orce with

two methods. First, the press is owned by

wealthy men (read corporations these

days!) who have every reason not to want

certain ideas to be expressed. And the

second reason, Orwell said, is a good

education. I you have gone to the best

schools (read specially the top manage-

ment and economics schools), it has been

instilled in you that there are certain

things it would not do to express or evento think about. Aided by the media, our

educated middle class showed its excellent

education until recently by banishing all

sceptical thoughts about the eciency

and intrinsic wisdom o the market, and

the virtues o corporate-led high growth

under nancial globalisation.

Would this global nancial crisis give

us the courage necessary to re-educate

ourselves to view the “logic o the market”

more logically? For, at times the unin-

tended eects o history can be benecial.

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