THE Oxbridge or LSE-educated fathers of the Five Year Plans, the empiricist deities who guarded our hallowed mixed economy, were once seen as the demi-gods of national Reason. Sitting in lofty institutes they decreed that the economy should be centrally planned, the state should direct investment and protect infant industries from global competition.
And how wrong and Soviet-inspired they are now seen to be! At a time when the country is in deep economic recession, Jagdish Bhagwati, Arthur Lehman professor of Economics and Political Science at Columbia, recently condemned Indian economists (read Left economists) of not having a policy sense and of having failed over 50 years to create high rates of growth because of rigid ideological positions.
As the economy flounders, Bhagwati's views perhaps echo a popular backlash against the early planners whom it is now fashionable to view as loony-lefty intellectuals who got mostly everything wrong in the Patriotic '50s and landed us in the Feel Bad '90s. Indeed all over the world, Francis Fukuyama's prophecy (The End of History) seems to have come true: Left economics is in retreat, vanquished by the global market.
Yet, liberal-Left dissenters to the present "Washington Consensus" are alive and well in India, thank you. And they say Bhagwati has no business being so critical. "It's all very well for Jagdish to sit in America and say we never had any policy sense. Why does he not return to India and see the conditions and pressures under which economists have to work here?" demands S.K. Goyal, of the Institute for Studies in Industrial Development and former advisor to the Chandra Shekhar government. "Yes, we made a few mistakes, perhaps we equated public good with more rather than less government but there was no bias against the private sector. Look at how the big business houses have grown in the post-Independence years, look at the setting up of the industrial estates, does this show a bias against enterprise? Today the free market in Russia has only brought beggars, racketeers and violence," Goyal says.
Smiles another economist: "Jagdish has an ego hassle with Amartya Sen. Socialism may be dead but the Left still has better intellectuals than the Right anyway." Goyal believes that the Left is better placed to relate to the poor and development needs than the votaries of marketism.
Prabhat Patnaik, along with Deepak Nayyar, have been described as members of India's "glittering array" of economists. Patnaik teaches at JNU and says that for Bhagwati to blame India's stagnation on the Left is a cheap jibe and betrays extreme naivete. "At a time when many economists including Bhagwati were demanding capital account convertibility, it was perhaps because of the opposition from the Left that capital account convertibility was never imposed. Now after the East Asian crisis, Bhagwati has woken up to the dangers of capital account convertibility. But there is neither a word of self-criticism from him nor appreciation for those who got it right."
Patnaik believes that there can be no return to the old regime, but Bhagwati's idea of complete free trade would place the Indian peasantry at the mercy of world prices and lead to famine and hardship. Bhagwati's arguments in favour of liberali-sation are a non sequitur because they simply don't take the existence of an imperfect market into consideration. "Bhagwati seems to wake up rather late in the manner of Rip Van Winkle to dangers of capital account convertibility or Wall Street capitalism," Patnaik remarks.
Bhagwati implies that the early economist-statesmen failed completely. Did they? After all, P.C. Mahalanobis—child of the "Bengali renaissance," physicist, statistician extraordinary, literary critic and amateur architect, as Terence J. Byres describes him in The Indian Economy—creator of the Mahalanobis model and founder of the Indian Statistical Institute is surely not so irrelevant as to be brushed aside by '90s free-marketeer disdain. The same may be said for K.N. Raj, author of the First Plan, a man "remarkable for his incisiveness, range and originality," or Sukhamoy Chakravarty, described by Amartya Sen as a man of "astonishing intellectual power", the "quintessential insider" who advised governments from Indira Gandhi to V.P. Singh.
It's easy to criticise those men now," says Pronob Sen, advisor, Planning Commission, "but we have to understand the context in which they were operating." The frontiersmen of Nehruvian modernity had lived through colonialism, they confronted a low savings, overwhelmingly poor nation, with a non-existent industrial base. What could they have done, but placed their faith in a state they hoped would be benevolent? What other method but central planning would ensure that crucial areas received investment?
The real problem came in the late '60s to the early '80s," says Sen. "Bhagwati's generation was the one which actually failed us because they were intellectually lazy." By the early '70s the evils of the '50s 'Development Consensus'—such as the burdens of licensing—were becoming clear but economic thinking remained stultified and people like Bhagwati hardly contributed to any radical breakthroughs. "It's easy to emigrate (the early '70s saw the great exodus when Sen, Manmohan Singh, Raj, Bhagwati and Arjun Sengupta all left together) and then pour scorn on the old country," says a professor at the Delhi School of Economics.
BEING left-wing in the '90s is seriously uncool but Mahalanobis' descendants are holding out against market fever. While impatient with BJP-style swadeshi, they warn that free-market capitalism may not be the best way either. They say that pure right-wing economics can never work in India. The state's role may have to change, but it is as important as ever because it alone can direct resources into public health and education.
"The Amartya Sen argument that human capital is as important as physical capital has converted Left economists into moral philosophers," says Barun Mitra, head of the Liberty think-tank in New Delhi. Moral economics argues for capitalism with compassion, growth with equity, for a market that is facilitated by, collaborates with and jointly participates with the state.
In times of the governing marketise-or-bust orthodoxy of the Washington Consensus, they argue that in order to create social and economic equity—now seen as a pre-condition for growth—you still need (albeit in a changed form) that '50s holy cow, the state. Patnaik believes that a degree of state intervention is still essential. "The assumption that the market always functions to ensure full employment of all resources is palpably untrue."
Deepak Nayyar, former chief economic advisor and secretary in the Ministry of Finance, says we have moved from the widespread belief in the '50s that the state could do nothing wrong to the fashionable conviction in the '90s that the state can do nothing right. "Both are caricatures of perception. The reality is far more complex.
The state and the market are complements rather than substitutes. The ideologues who present it as an 'either/or choice' create a false debate which leads nowhere."
"The bottom line," write Nayyar and Amit Bhaduri in their An Intelligent Person's Guide to Liberalisation, "is if liberalisation cannot give you drinking water, irrigation and electricity or employment to the poor, it will not be taken seriously irrespective of technical mumbo-jumbo." In conditions where the state is seen as a corrupt parasite, the right-wing notion of the minimalist government may be theoretically attractive but given India's mass poverty the shrunken state in fact becomes a cop-out from public welfare.
Praveen Jha, economist at JNU, is also dismayed at Bhagwati's assertions. The entire problems of the early planning process and later was not that the Left was dominant, rather that a Left agenda did not prevail in the official discourse. Issues like radical land reforms were ignored. "In any case, Bhagwati was very much part of the official line until the '60s. So what is he talking about?" Jha exclaims.
Additionally, has the baby of good economic advice been thrown out along with the bathwater of the Five Year Plans? The discrediting of the centrally planned economy has resulted in the decline of the centrally appointed economist-pundit, says a financial writer. Sukhamoy Chakravarty was perhaps the last great economic advisor, in the tradition of Raj and Mahalanobis, says historian and columnist Arvind N. Das.
NAYYAR feels that the dominance of the old Development Consensus has now been replaced by the hegemony of the Washington Consensus. "Yet, in spite of the dominant thinking there have always been voices of dissent. These voices have played a crucial role as doubt is as important as knowledge in the design of economic policy." Nayyar believes that Bhagwati was an important voice of dissent in the '60s for which he deserves credit. "But some of us are voices of dissent in the 1990s. I find it puzzling that Jagdish should have admired it then but dismisses it now. After all, debate is the only way to defeat dogma."
According to Nayyar, the profession of economics and the domain of public policy have become different worlds. "Those outside the corridors of power could influ-ence policy only if they swam with the tide not if they went against the mainstream. Conformity was at a premium and dissent at a discount. Thus a small subset of 'sar-kari economists' flourished while the economy languished. In this context it is neither fair nor correct to blame the profession of economics as a whole for the problems of the economy."
Das says there's been an overall technocratisation of economics, economists don't involve themselves with a macro vision of India, there are very few original ideas and old shibboleths are repeated. "Since the golden age of economics in the '50s and '60s, there's been an overall decline, with the loss of a central problematic."
Nevertheless, Arjun Sengupta, formerly in the Planning Commission and one of the authors of the Ninth Plan, believes that notwithstanding Bhagwati's criticism, Left-liberal economics remains relevant to India. Sengupta differs with the orthodox Left position of Patnaik because he believes the market is not inimical to the concept of growth with equity. "But technical progress requires human capital, investment in health and education is not simply socially useful, it's essential for economic growth. I do not support growth that leads to inequity."
Sengupta disagrees with Bhagwati: "It's not possible to reduce anything to a simple set of rules, of one grand vision and a single blueprint." If the unquestioned obedience to Five Year Plans is simply replaced by blind subservience to the market, then economic policy will remain hostage to dogma, whether of the Left or of the Right.
