economic freedom

Retiring a 61-year old (Republic): Is It Time For An Obituary?

Sanjeev

Sanjeev

Below is my own perception, not researched ‘fact’ about where we stand on economic governance vis-à-vis major nations of the world. Looking at this, one would think that we share the bottom of the Table with the US, without, of course, having seen their (prior) economic freedom. So we have the unique distinction of being indigent like the rich, without, of course, being anywhere close to rich.

Disclaimer: This article was written originally in February 2011, so some data points may be outdated.

Table of Economic Governance: Is India Really Shining?

Country Rating

Govt Objective

Japan

China

US

India

Full Employment

×

×

×

Low Inflation

×

×

×

Fiscal Deficit

×

×

×

×

Current A/c Deficit

×

×

GDP Growth Rate

Below Potential

Overheating

Below Potential

Overheating

Japan does better than expected, because its problems are not completely of its own making. Their demographic problem is not strictly because of Governance, and its employment record is not so bad. China comes closest to the pass mark, but it has to pay the price of driving fast when (world) traffic is slowing down.

Originally, I started writing this article 2 months back, to argue that I saw no reason to be excited about India, and no reason to justify the huge premium our markets were commanding, regardless of underlying fundamentals. The markets woke up finally, and here we are, down 15% already and looking down the chasm to see whether we have got halfway to the bottom.

Civil Society is duty-bound to give 3 fundamental freedoms:
  1. Political freedom
  2. Social freedom
  3. Economic freedom

Most definitions of Governance would cover any, some, or all of these. Where countries differ is in what gets covered, in what sequence, and with what depth. All this, of course, provided Personal Freedoms (i.e. right to life, property, security, rule of law, etc) are taken for granted; since we are discussing the major nations (and not Idi Amin’s Uganda), I am ignoring this, the most fundamental of Freedoms.

If we take a snapshot of Asia, including the Middle East, we will find different amounts of emphasis on the different Freedoms, in different countries.

Starting with India: post-Independence, we started in the sequence laid out above, with much higher levels of Political Freedom than even Social Freedom (the caste system and untouchability were big crosses to bear). When it comes to Economic Freedom, of course, we are still far behind the rest of Asia. What we take for granted, is the enormous amount of political freedom available in a country that does not allow you to decide what to produce and where, but you can make secessionist speeches in the heart of Delhi and get away with it, provided you strike the right political chords.

China has been exactly the reverse: high on economic freedom, even perhaps social freedom but almost nowhere on political freedom. Outside commentators who predict implosions, would do well to remember that the build-up of revolutionary emotions is a function of the ‘expectations gap’. In Asia, if economic freedom is available, political freedom is not sought very aggressively. Singapore, Korea, Japan, and Malaysia are all examples of this; India is considered lower down the pecking order, mainly because its economic management has failed its people.

There are, of course, the ‘failed States’ like Pakistan, Afghanistan, and to a lesser extent, Burma & Cambodia, which have failed all 3. These may be ripe for revolution; the Middle East has many such cases, Yemen being one. The elites that dominate the polity of such nations have misappropriated both economic and political power, creating tensions between the haves and the dispossessed. These tensions are surfacing now, and we can see the contagion spreading across states with similar Governance standards, i.e. Tunisia, Egypt, Morocco, Yemen, and maybe Saudi Arabia.

The History of Europe

There have been some whispers about India facing similar threats of revolution, because of its ‘pathetic governance’. I worry a little more than the others because I  care more about the effects of global warming, its impact on the Indian monsoon, and the fact that our pathetic efforts at Water and Agriculture Management will be our ‘fatal flaw’. Otherwise, judging by the metrics outlined above, we only need to improve our economic management, which is squarely in our hands. The major factors in India, are income inequality/ redistribution and structural reforms, especially in food and basic infrastructure.

History, especially European history, teaches us that the Church has to move out of the political sphere (i.e. separate religion from politics), and the State out of the social and economic spheres (“business is the job of Business”). In a very perverse manner, that may even be typically Indian, a scam (a.k.a. evidence of misgovernance) breaks out at the precise point in time when the State moves out of an economic sub-sector, Telecom being a prime example. Other scams around the corner are the PPPs in Infrastructure, or Energy, where space is being vacated for Solar, etc.

The true economic freedom

I tried to argue in a previous column that the net economic effect of corruption is marginal. It had a violent effect on some of my readers; while I stand by what I said, let me now make a fine distinction: the net (economic) effect of misgovernance is NOT marginal. It is not my case that India is not misgoverned, quite the opposite. It is just that I want to judge India’s journey as part of a historical process: to dwell on how far India has come, rather than how far it has to go.

Casteism and regionalism are much less the forces they used to be. And barring a few festering cases like Kashmir, secessionism has died down (remember Khalistan, Hyderabad, Jamnagar, Tamil Nadu, even Assam?) and the integration of Indian nationality is complete.

So you be the judge. The crimes of Indian (mis)governance are neither few nor small, but they seem mostly clustered around its economics. Given the ferment that the (Indian) system has tolerated, is it likely that our peculiar elephantine pace will evolve a ‘jugaad’ which absorbs the inherent (political) pressures of managing this continent called India? Or will Global Warming, a failed monsoon, gargantuan mismanagement in water and agriculture infrastructure, food prices, and maybe famine achieve what Pakistan (and Richard Nixon) could not?

Remember, revolution is always and everywhere a political phenomenon. Its final expression has to be through the vox populi. It bursts out only when the vox populi is throttled. If the final enabling condition for revolution is not met, how likely is it?

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