Those who say political uncertainty was good for the economy are talking through their hats
NOW that the country gears itself for yet another general election, the salon circles and the chattering classes have started brooding on the nature of our development process and the factors that can accelerate growth. Not surprisingly, what should have been rigorous introspection has ended up in inane navel-gazing.
Among the intriguing notions being propagated in the media is the thesis that unstable governments (read "coalition regimes") in India have done better than stable ones. The immediate reference is to the track-record of the UF government in the last 18 months, compared to the last 17 months of the Rao regime, but the idea does not stop here. In one case, Swaminathan Aiyar's purple prose would have us think that a "man with a steady hand often believes that he need not fire at all". Worse follows—"noise does not equal inaction, nor silence action". Fox-hunting allusions apart, the bottomline here is that political instability is a good thing for economic development and the great Indian public should not be worried about such trivia as steady governance and social consensus.
This is a line of thinking that leads to a dead-end at best; at worst, it is a recipe for disaster. An easily understandable analogy would be a postulate that the current traffic system in Delhi is the most efficient, since the feverish crisis situation at all times prompts every player to take decisive and quick steps (just to stay alive). Also, there cannot be a broader coalition than one which includes the Blue Line bus and the scooterist.
This summarises the irrelevance of the debate. What the authors of the "instability equals efficiency" dictum have done is to lay down a prototype liberalisation agenda, elevate it to the status of a heavenly potion and evaluate every policy measure from the perspective of this magic formula. Understandably, no meaningful dialogue is possible with these fervent evangelists on the internal consistency and logic of their agenda; anyone who has the temerity to question their commandments is sent to the stake. At this stage, we need to urgently restore a semblance of reality to the discussions. The pertinent issues which must be addressed during these weeks are the following: (a) the social and political pre-requisites for sustained economic development; (b) the experience and record of other countries; (c) the institutional safeguards needed for a successful transition from a controlled economy to a market-driven system; and (d) the best ways to persuade Indian political parties to recognise these ground realities and incorporate them into their programmes.
On the first item, there is incontrovertible evidence and research in the post-war period that successful and sustained economic development requires a broad degree of social consensus and a high level of political participation. It must be stressed that the social consensus must be genuine and voluntary, rather than enforced and induced by fear. Mass participation is also essential, though the two factors (genuine consensus and participation) are logically linked and possibly inseparable. What is being suggested is that a country's population needs to share a vision of the future. A fractious and divisive ethos leads to lower participation in economic life and an attendant lack of zeal and efficiency. It is surprising that many people who take this for granted in the arena of sports do not recognise its validity in economics and the social sciences. Led by Irma Adelman and Charles Morris from the 1960s, there have been numerous studies on this subject which corroborate our line of thinking.
The experience of other countries stares us in the face. The Scandinavian trio (Sweden, Denmark and Norway), Switzerland, France, Germany, Canada, Singapore and Japan are all nations which may be said to typify the principles enunciated here. Broadly, they have all done very well from the late 1940s (Singapore from the late 1960s) till the late 1980s. All of them can be said to have adopted the general social-democratic model (with the arguable exception of Singapore) in which the state has the responsibility of providing the appropriate infrastructure for business and an adequate social welfare net for the citizen. Also, these countries have high levels of political participation by their citizens, with Switzerland at the top of the pecking order, since it decides important issues through referendums. Finally, these countries have a relatively egalitarian distribution of income and wealth.
Taking the debate now to a related field, we should also study the experience of other countries which have, like us, tried to shift from a command regime to a market economy. At one extreme, there is the horrendous example of Yeltsin's Russia,ruled by mafia gangs and rapidly regressing to the 19th century—surely this is a model which even the most avid libertarians will not recommend. More relevant comparisons would be the Czech Republic on the one hand and Hungary on the other, with Poland in between.
On all accounts, the Magyars with their "Goulash capitalism" have made the most effective transition, although their earlier "Goulash communism" made the whole process easier, since it was almost a half-way house. What the Hungarians did was to design an effective social security net for those who would bear the brunt of the change. This meant that dissent and tension were minimised and there was reasonably wide-spread support for the new order. The Czechs under Vaclav Klaus went about the job with obtuse ham-handedness and corruption and soon found their capital market and financial sector on the brink of collapse. Poland tended to follow the Hungarian model and has ended up with a performance record closer to Hungary's rather than the Czech Republic's.
All this should have been of critical significance to our political parties at this juncture. Sadly, they seem to ignore the linkages between social factors and economics. The only relevant comment one has heard is the promise of one major national party (the BJP) to "reform the reform process". But there are no specifics behind this rhetoric, unless they have been left to individual candidates to ad lib at rallies. Other national parties so far have not even attempted to touch this sensitive issue. The whole approach is yet another example of the way our political leadership has let us down. Surely, the electorate should now grill the principal players and compel them to spell out their specific stand on a subject which will determine this country's evolution in the next few decades.
(The author is a stockbroker and corporate analyst)