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| Sunday, 10 July 2005 |
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Editorial
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Dilemma of development: The state or the market Dr. N. M. Perera memorial lecture was delivered by Prof. Amit Bhaduri of Jawaharlal Nehru University, New Delhi, India, in Colombo this year. here are excerpts I did not know Mr. Perera personally well, and met him only a few times on official occasions during 1969-70. He was then the Finance Minister in the United Front Government led by Mrs. Bandaranaike, and I was working as a young economist with the United Nations Development Programme in Sri Lanka. An animated debate was going on those days about what the government could or could not achieve in Sri Lanka. It ranged from the budgetary implications of free distribution of rice, and expansion of technical education to possibilities of faster growth propelled by state-led industrialisation. Those were the times when the received wisdom mostly favoured government initiated economic development. And, even in the western world, the mood was somewhat similar. The welfare state, and economic policies of the state for maintaining high employment were accepted principles across a wide political spectrum. With the advantage of hindsight we now know that, in the developing world, the result of this strategy of relying almost entirely on the government for kick-starting the process of development was by and large disappointing. The subsequent collapse of the former Soviet Union laid bare the weaknesses of bureaucratic central planning, whereas China began abandoning openly the traditional socialist view that the state must be the dominant economic actor in economic development. Nevertheless, China has kept tight control over political developments through one party rule. The end of the competition between the two economic systems of market-led capitalism versus state-led socialism removed largely the political compulsion on western governments to pursue pro-distributive policies of the welfare state in favour of the working class in a market economy. At the same time, the failure of bureaucratic central planning led to serious questioning of the received wisdom of relying on the state for playing the dominant role in the developmental process. Opinions began to swing gradually to the other extreme of glorifying "the magic of the market place", and minimising the economic role of the state. And, this has now become the new orthodoxy, the received wisdom of economic policy both in the poor and, in the rich nations of the world. Nevertheless, it must not be forgotten that this new market-oriented orthodoxy has been far from a story of unambiguous success in most parts of the world. Since the mid seventies, in Central and Latin America the average growth rate, compared to the earlier period of 1950 to 1973 when the state was more pro-active in general, declined from above 2 to about 1 per cent. An economic depression of a magnitude only comparable to the 'Great Depression' of the 1930s in the capitalist world was inflicted by the policies of rapid economic liberalisation on the countries of the former Soviet Union, and also east Europe, from which they are still recovering. In those parts of the world, the average growth rate fell from some 3.5 to minus 1.1 per cent. And, despite the ascendancy of market-oriented policies, almost the entire continent of Africa went into a complete stagnation of zero growth from its earlier average modest growth of some 2 per cent. Only in Asia the picture was more mixed. The average growth rate in most countries of Asia fell from a high 4.1 to about 1 per cent. The exception to this otherwise gloomy world picture were the two largest countries, China and India, and also the east Asian countries. But even the economic success of the latter group of countries came to be marred by a deep financial crisis starting in 1997. On the whole, in deciding on the success of pro-market policies in terms on the score card of growth in the different parts of the world, the jury is still very much out. Perhaps a more balanced view can be formed on the basis of the recent experiences of both China and India. Despite their very different political systems, note that both these countries had one thing in common in their economic policies. Both were far more circumspect in integrating with the global market. China had to balance carefully all along the severe restrictions inherent in its political system with economic liberalisation and movement towards a freer market system. In India's case, the numerous pulls and counter-pulls of its many layered and somewhat chaotically functioning political democracy ruled out extreme policy changes in favour of rapid liberalisation at home, and integration with the world economy. There is an element of truth in the joke one often hears in India that, any change in its economic policy is like the slow turning of a huge elephant! In contrast, the recent experiences with market based policies in several countries, especially in Latin and central America or in Africa suggest that, rapid integration with the global market through liberalisation can turn out to be counter-productive for various reasons. Therefore, instead of taking an over-simplistic ideological position, countries might do better to liberalise, and integrate with the world market at the pace that is suited to their particular circumstances. The mistake is to think that market-oriented liberalisation is uniformly good or bad in all circumstances. The main message should be clear in the light of these experiences. Little room is left for orthodoxy, no matter whether it is of the Left or, of the Right variety; and the debate about the state versus the market must also be considered from this angle. In a political democracy, one-adult-one vote coexists with the market system, where voting takes place according to purchasing power. The rich have more votes than the poor in the market. However, because the majority is poor in most developing countries, the poor tend to have a stronger voice in the political system. Thus a hiatus is opened up. Although the poor have a feeble voice in the market, they have a stronger political voice, and that generates inevitable tensions. It becomes apparent in many different ways in different places. In our part of the world, we see its symptoms in the assertions of different notions of group affiliation, or identity through religion, language or (in the Indian case) caste, and the poor are divided in a fragmented way by these identities. But the tension between the economic and the political system also manifests itself at times more directly. Here, I take a recent example from India. While we have no way of knowing how the poor majority in China would have reacted to its current economic phase of domestic liberalisation and global opening up, accompanied also by a worsening of the distribution of income, especially across regions, and deterioration in terms of social security due to open unemployment, the Indian case is interesting in this respect. The last government in power went confidently to the general elections with the slogan of "India shining", presumably because of the relatively high rate of economic growth, a booming stock market, and India's growing presence in international information technology industry. And yet, they lost the election, and they lost in places like the State of Andhra which is emerging as a main centre of information technology. Let us also not forget that the previous Congress-led government which took credit for liberalising economy had also lost the election. There is something obviously missing in the simple equation that higher economic growth achieved through the market-oriented policies of liberalisation is to be accepted uncritically. And, that missing element is, how the well-being of the majority of the poor gets affected by these policies. Next: Balancing act between the State and the market |
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