Why we need bottom up economic development models for India and other developing nations

 

The idea of the left and the right as it pertains to economic development models, and general political ideology, arose from a seating arrangement instituted in the French assembly in 1789 (around the time of the French revolution); These terms and concepts then gradually spread to the rest of the world today, and are widely used in economic circles as well. Leftists generally argue for a greater government control over the economy and the economic institutions, and a limited or no role to be played by free markets. Right wing proponents on the other hand, argue for the supremacy of the markets in determining economic outcomes, and a rather limited role to be played by the government and political institutions. These two positions, of course represent extreme positions. Many economists and thinkers have taken intermediary or via media positions from time to time.  Many great thinkers have also proposed other economic development models over the past few decades or centuries. An economic model is an oversimplified description of reality that can be easily understood and tested with minimal effort. It retains only the bare essentials, and is designed to develop and test hypotheses about economic outcomes and patterns of behaviour. Economic models may be either theoretical or empirical, and may or may not contain mathematical or statistical models and equations.

Developmental models have by and large, been western centric, though there have been indeed some notable exceptions. Traditional western economists have measured economic progress and prosperity in terms of growth-related and growth-centric metrics such as per capita income and GDP growth rates through the use of economic factors, though in the recent past many other economists from developing countries and other parts of the world have called into question the efficacy of these measures in measuring the entire gamut of economic activities and economic outcomes and have called for alternative measures and metrics instead. Therefore, some economists like Amartya Sen and others, have developed concepts such as human capital and the human development index. The concept of gross national happiness is another interesting concept that evolved in the Buddhist Himalayan kingdom of Bhutan. Some of these concepts and ideas arose from the realization and understanding that there are indeed many cultural and economic differences among people in different parts of the world, and that the ground realities in developing countries are different. For example, in many developing countries, we have concepts such as sociocultural groups and socioeconomic groups, and wide variations in economic performance among individuals, (as measured by means of measures such as the GINI coefficient, and others metrics) often due to cultural factors such as cultural bottlenecks. Therefore, we believe, and will argue that economic performance must be meshed with sociological and anthropological factors, and developmental processes must be identified more comprehensively by taking into account and consideration aspects such as sociocultural change, and the utilization of human, social and cultural assets as well. We have written extensively about this in the past, and will continue to harp on this ad nauseum! At the same time, environmental and other factors must also be taken into consideration, and sustainable developmental models developed.

Over the years, there have been several theories and approaches to economic development, and some of these date back to the times of Adam Smith. The theory of Mercantalism was hugely popular at the dawn of the industrial revolution. According to this doctrine, wealth could be determined by trade surpluses, and the accumulation of gold reserves. The Classical theory proposed that the markets had a huge role to play in the promotion of economic welfare. Proponents of this theory emphasized on labour productivity too. Eventually, economists also came to acknowledge the role played by technology in determining economic productivity, and creating economic specialization and skill diversification. The classical theory was eventually replaced by the neoclassical theory; this theory argued that economic growth resulted from labour, capital, and technology. We then also had the endogenous growth theory, and the exogenous growth theory; the former states that growth is internally generated, while the latter position argues that growth is externally generated.

We will argue for a combination of the two. For example, an increase in investment in agriculture will put more purchasing power into the hands of India’s huge agricultural workforce, and will greatly boost all sectors of the economy. Unlike Herbert Hoover, Franklin D Roosevelt (who was heavily influenced by the ideas of John Maynard Keynes) adopted precisely such an approach to pull the American economy out of the Great Depression. In India, KN Raj was an important Keynesian economist, though some of his ideas were eventually sidelined. This approach is naturally completely different from socialism – or Fabian socialism, a form of socialism that was followed in many countries; the latter heavily interferes with human initiative and free enterprise, and stifles economic enterprise and economic growth. Therefore, the two concepts must be differentiated from one another at the very outset, and must not be confused at any cost. Bottom up economic growth models, we believe, and argue will always greatly boost economic growth, and achieve growth with equity to boot.

Over the years, economic thought has become ossified and crystallized into rigid schools of thought that are often characterized by dogma. These camps do not talk to one another, and refuse even to consider raw data or evidence, and any form of a well-meaning data-driven analysis. We must eschew all these less-than-ideal tendencies from the very outset, and adopt a more data-driven approach, and a more local-centric and a culture-specific approach. Economists belonging to different camps and schools of thought must also talk to and listen to each other more. Some capitalists think that the free market is everything, and that the market knows best. Extreme versions of capitalism and laissez-faire capitalism advocate that there should be minimal to no interference by the government in running the affairs of the economy. This approach may not augur well for developing countries, as it may lead to inequitable economic development. It is only in the recent few decades that welfare economics has come of age, and extreme and conservative right wing ideologies have begun to be jettisoned. This idea and concept of a welfare state is of course, somewhat different from the idea of a bottom up development model, though the two may be judiciously combined with each other in many ways.

India’s economic policy after independence was greatly influenced and impacted by its negative colonial experience, which was seen as exploitative by Indian nationalist leaders who therefore eventually veered towards autarchic and self-contained economic policies, and to a much lesser extent, towards the Leninist-Stalinist model pursued by the erstwhile, and now defunct USSR. There was a general distaste for capitalism based on the experiences of the Great Depression of the 1930’s, and the perceived relative success of the USSR during its early years. Barring C Rajagopalachari and Sardar Vallabhai Patel, most early Indian leaders and economic thinkers were left-leaning to varying degrees. The Indian government also adopted protectionism, with a strong emphasis on heavy industry, centralized planning, economic interventionism, a large government-run public sector, and heavy regulation of private Industry. This period also accorded the commanding heights of the Indian economy to the public sector and state run enterprises.  The Indian economy was also effectively cut off from the rest of the world, and its share of world GDP declined. The five-Year Plans of India adopted by the Indian government during this period and developed initially by KN Raj, and then PC Mahalonobis, were on the lines of central planning models followed in the Soviet Union. Core and important sectors such as steel, mining, machine tools, telecommunications, insurance, and power plants, among other industries, were effectively nationalised in the mid-1950s. The Indian economy of this period is referred to as Dirigism. As per this doctrine, the state directs or sets the direction for most sectors of the economy. [1] [2] [3]

The results of this economic experiment were mixed. While there was generally a growth in heavy industry, the economy in general languished and stagnated with the Hindu growth rate – a term coined by the Indian economist Raj Krishna. There were a few bright spots such as the green revolution launched under the aegis of the eminent food scientist MS Swaminathan. The Indian economy began to be gradually though inconstantly and erratically liberalized in the 1980’s at the behest of the IMF. Then, the subsequent Indian Prime Minister Rajiv Gandhi also launched some reforms. The burden fell on PV Narasimha Rao and Manmohan Singh in 1991 to abolish the license raj completely. However, there have been many critics of the liberalization programme, mostly from the left, and from the marginalized communities. Leftists refer to the liberalization program as neoliberalism, and this is a handy Marxist catch phrase that is used to refer to the reemergence of old and conservative western ideas and ideals with respect to free markets and economic freedom. The liberalization policies have also been widely criticized in some quarters for greatly increasing income inequality, concentrating wealth in the hands of the elites and privileged few, worsening rural living standards, causing unemployment and layoff, by passing the agricultural sector and the MSME sector, and leading to an increase in farmer suicides in distressed agricultural regions.

Left-leaning thinkers Jean Dreze and Amartya Sen have dwelt on India’s inherent schisms and contradictions in their book, “An Uncertain Glory: India and Its Contradictions”. These authors also argue that India’s problems won’t be solved though rapid economic growth alone, and fundamental structural changes are required. These authors have also lambasted the Gujarat model of development which is largely seen as being neoliberal. These authors are also right in saying that high GDP growth rates may not improve social indicators automatically, and that government intervention is required. Trickle up and inclusive growth models are therefore urgently required, and these will also yield rich political dividends. [4] [5]

Many economists have also questioned the claimed benefits of trickle down economics. Trickle down economics refers to the often mistaken belief that benefits of economic development automatically trickle down to all sections of the society, even with minimal or no government interference. This approach is often fallaciously endorsed by rightwing groups and hardcore capitalists. This is based on the idea that if the horse is fed, the sparrows around it also get enough to eat. Some advocates and proponents of this approach also argue for tax cuts for the wealth, arguing that it has the potential to automatically lift millions out of poverty; this is a misnomer, because there may be little social  or economic interaction between various sociocultural and socioeconomic groups. It can only serve to make economic gaps wider, because we have no control over how the wealthy spend or employ their money. Also, different types of economic activities can have different wealth trickle down patterns. For example, money spent on agricultural projects can have different wealth percolation patterns from money spent on infrastructure projects, or money spent on different types of industry, even though all these may benefit the economy eventually. Governments, particularly in developing countries must realize this quickly, and must embrace growth with equity models. For more information, refer to our work on Anthropological Economics, and our other assorted and miscellaneous work on development and developmental economics.    [6] [7]

Our ten mantras would therefore, be as follows with regard to economic policy:

1.       We must not blindly ape western centric development models, ground realities in different countries may be fundamentally different from one another.

2.       Issue-based, problem-based, and context-based solutions must always be adopted.

3.       We must always listen to more and more voices from diverse social and cultural spectrums.

4.       We must always offer only constructive criticism.

5.       Non-ideology based approaches must be adhered to, and counter-ideologies must also not be slavishly followed.  

6.       Course-corrections may be required from time to time, and these must be adopted whenever they are required.

7.       We must continue to learn from past mistakes, and learn from each other. By this we mean other states, other countries and other economic philosophies.

8.       The canons of efficiency, economy and productivity along with output-criteria driven economic measures must be borne in mind at all times.

9.       The idea of benefit to maximum number of people must be borne in mind at all times.

10.   Pragmatism must also be pursued at all costs.

These would also be aligned to the seventeen SDG's or sustainable development goals adopted in 2015. Therefore, based on these, we can derive a set of thrust areas which are as follows. All other thrust areas would be aligned with, or subservient to these thrust areas. For example, education boosts entrepreneurship, innovation and creativity in its wake, and will lead to a ripple effect always:

1.       Education

2.       Health, childcare and nutrition

3.       Agriculture

4.       Manufacturing

5.       Services

6.       Sanitation

7.       Science, technology and research

8.       Social security

9.       Urban and rural Infrastructure

10.   Sustainable development

Governments, particularly in developing countries must invest heavily in all these. It is a myth to claim that trickledown economics alone is the panacea for all ills, or is the be all or the end all of everything.

 

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[1] Datt, Ruddar; Sundharam, K.P.M. (2009). Indian Economy. New Delhi: S. Chand Group. p. 976. ISBN 978-81-219-0298-4.

[2] Drèze, John; Sen, Amartya (1996). India: Economic Development and Social Opportunity. Oxford University Press. p. 292. ISBN 978-0-19-564082-3.

[3] Journey of a nation: 75 years of the Indian economy, Sanjaya Baru

[4] Gurcharan Das (2006). "The India Model". The Foreign Affairs

[5] How wrong has the Indian Left been about economic reforms? Aditya Gupta, Research Internship program, 2006

[6] Krugman, Paul; Wells, Robin (2012). Economics (3rd ed.). Worth Publishers. p. 2. ISBN 978-1464128738.

[7] Caplin, Andrew; Schotter, Andrew, eds. (2008). The Foundations of Positive and Normative Economics: A Handbook. Oxford University Press. ISBN 978-0-19-532831-8.