The inclusive growth mantra
Source: By Arunabha Bagchi: The Statesman
Remember garibi hatao, the slogan coined by Indira Gandhi during the 1971 election campaign with great success? In 2013, our Planning Commission proudly claimed that we now have “only” 22 per cent of Indians with the dubious distinction of being extremely poor! The criteria used to measure extreme poverty by the Planning Commission have caused embarrassment even among some diehard Congress leaders. The slogan used instead by Indira Gandhi’s grandson and his cohorts to counter the “Namo-nia” fever is “inclusive growth”. This change is significant in two respects. First, the slogan changed from Hindi to English, the language “young Indians want”. Second, the slogan of 1971 was very easy to understand, while the current slogan is tantalisingly vague. One can even follow the current debate, however unseemly, between Jagdish Bhagwati and Amartya Sen on growth versus inclusion. The propaganda of “inclusive growth” remains, however, as elusive as ever.
In 1971, the dominant theme of economic development was still dictated by the post Second World War consensus based on Keynesianism, neo-classical growth model of Robert Solow (Nobel Prize: 1987) and the (Simon) Kuznets (Nobel Prize: 1971) curve. For laymen like me, this means that government spending in infrastructure development is necessary to facilitate private investment for industrialisation, that per-capita income between countries would eventually converge despite huge initial differences and that, although distribution of income in a country tends to deteriorate in the initial phase of growth, this inequality gets reduced as the growth receives sufficient momentum.
By early seventies it was apparent that there was no sign of convergence of per capita GDP between rich and poor nations. Furthermore, even in those poor countries that witnessed significant growth, income inequality only got worse. This led the World Bank to endorse the policy of active redistribution of income to reduce inequality within a country. Amartya Sen (Nobel Prize: 1998) did never disapprove of this policy prescription.
This development got a fatal blow with the rise of Thatcherism from the late seventies in the West. The prevalent view then was influenced by neoliberalism of Friedrich August von Hayek (Nobel Prize: 1974) and monetarism of Milton Friedman (Nobel Prize: 1976).
Again, in simple language this means that any state intervention in the economy causes more harm to the citizen than good, and controlling the money supply to reduce inflation should be the only policy goal of any government. Interestingly, development experts of international institutions soon started to sing the same tune and the Washington Consensus (WC) was born. The sole focus was on freeing up the market by abolishing government intervention on wages and prices, relaxing labor laws to fire employees with relative ease, dismantling trade barrier and allowing free flow of capital. This has come to be known as globalisation and the “market” became sacrosanct. Jagdish Bhagwati became arguably the most influential and articulate proponent of this phenomenon.
Continental Europe could not be swayed by this Anglo-Saxon myopia, but poor countries of Africa, Latin America and newly freed former socialist-block countries were forced to swallow this bitter pill by IMF and the World Bank.
Practical results of this policy were contrary to the prevailing wisdom. Financial crisis erupted from one continent to the other during the nineties and had to be contained by ad-hoc measures. The “trickle down” effect of the policy was hardly visible. Most devastating for the neoliberals was the experience of countries that grew rapidly during that period.
The historical experience of Japan, followed by South Korea, Taiwan and Singapore, and the recent experiences of Malaysia, Thailand and China, show that all these countries grew by rejecting policy prescriptions of the WC and using state controlled capitalism, protectionism and other anti-free market measures. Finally, studies showed the human cost of the financial crises, with disproportionate share of the burden falling on the very poor and no noticeable improvement in poverty of the countries following the IMF/World Bank guidelines.
The destabilising effect of the WC and pressure from emerging economies with their increasing clout forced the World Bank to shift its policy somewhat to redistributive justice for the poor. Fear of spontaneous popular revolt in poorer countries, somewhat akin to the Arab Spring witnessed later, also contributed to this change of emphasis. The final outcome was the report, published by a Bank-sponsored Commission on Growth and Development, entitled The Growth Report: Strategies for Sustained and Inclusive Development, and the new development slogan of “Inclusive Growth” was born.
The most dramatic paragraph in that report reads as follows: “In recent decades governments were advised to ‘stabilise, privatise and liberalise.’ There is merit in what lies behind this injunction … But we believe this prescription defines the role of government too narrowly. Just because governments are sometimes clumsy and sometimes errant, does not mean they should be written out of the script. On the contrary, as the economy grows and develops, active, pragmatic governments have crucial roles to play.” In practical terms, the changes in policy prescriptions were largely cosmetic, except for recommending hand-outs to help the extremely poor to reduce absolute poverty. Expanding opportunities for the poor was frequently mentioned, but there was no mention of reducing relative poverty or income inequality.
How does India come into this picture? After Independence we started the novel experiment of socialist-style planning in a capitalist economy with democratic governance. If successful, this would be the role model for countries slowly emerging from colonial exploitation. Unfortunately, we got the worst of both economic systems: bureaucratic socialism with crony capitalism aided and abetted by our unscrupulous politicians.
During my Presidency College days in the mid-sixties, we once invited Ashok Mitra, ICS, to give a lecture in the Spartan one room residence of Father Fallon. Mr Mitra told us in jest that, as the Registrar General of India during the 1961 census, he compiled a list of all marital relations among the top bureaucrats, big businessmen and important politicians in our country. The present corruption scandals reflect this unholy nexus that has only grown much bigger with the passage of time.
Courtesy: http://www.ksgindia.com/study-material/today-s-editorial/8820-22-august-2013.html
INFOLINE 