Pretending to act for poor is last refuge of scoundrels

One India, 27 September 2012


While India continues to see economic reforms through the lens of politics, debate continues whether economic reforms like allowing FDI are at all bad for the poor of this country. OneIndia News spoke to Dr Christopher Lingle, an independent economist who had predicted the East Asian economic crisis in the late 1990s.

Dr Lingle is a Visiting Professor of Economics at Universidad Francisco Marroquín in Guatemala, Adjunct Scholar at the Centre for Independent Studies (Sydney), Research Scholar at the Centre for Civil Society (New Delhi) and Member of the Academic Advisory Council of the Globalisation Institute (Brussels). His research interests are in the areas of Political Economy and International Economics with a focus on emerging market economies and public policy reform in Europe, East Asia, Latin America and Southern Africa. He is the author of the book The Rise and Decline of the Asian Century. He is based in Guatemala City.

Here is what he told OneIndia.

OneIndia: What is your take on the current political chaos in India over the government's crucial decisions of opening the economy and efforts towards deregulating fuel prices? It seems the political class in India is unable to understand that a closed and subsidised economy can not sustain in the long run. Is too much politicisation holding the country back?

Dr Lingle: Political chaos in modern India is the inevitable outcome of a long, misguided history of extensive state intervention into economic affairs. In turn, this lead to ever-increasing politicisation of daily life.

As it is, India's politicians and intellectuals suffer from a mental trap that induces them to enthusiastically embrace government control over markets. This hostility to the market economy comes from a historical tradition that, wrongly, equates colonialism with capitalism.

This misguided equation meant that opposition to colonialism necessitated opposition to capitalism. This mental trap impedes reform and reduces the possibility for the truly poor to gain access to economic opportunities that would arise from higher economic growth.

OneIndia: India, unlike China or many other African countries, has strong institutions like a competent judiciary, a viable political democracy, a strong bureaucracy inherited from the British rulers and these factors place India at an advantageous position to realise the good effects of economic liberalisation. What's your take on this?

Dr Lingle: India's institutional advantages over rivals like China tend to make me optimistic about India's economic prospects, especially when I am not there. Upon returning to India and reading the local papers, I am being reminded of the incompetence and rampant corruption which make me pessimistic. (By contrast, my pessimism about China's long-term prospects when I am outside of China is replaced by optimism when I see physical improvements upon visiting there!)

And so it seems that inept or lazy politicians and the bureaucrats are squandering these precious institutional advantages.

OneIndia: Will FDI in retail really harm the poor and the humble sections in the country? Political parties are extremely vocal over this point and one of them even pulled out of the government, leaving it as a working minority. They feel the entry of super-chains will eventually see the local shops being closed down. India has already seen liberalisation being carried out in 1991 but did that affect the poor sections? Instead, the general feeling is that lots of people have found themselves employed in some capacity or the other, which would not have been possible in a closed economy.

Dr Lingle: There is no evidence that the "poor" as a class will be harmed by FDI in retail sales. It turns out that slum clearances and the "war" against people trying to earn livelihoods in the informal sector do much more harm to the interests of the poor.

As for small traders, they have much more to fear from arbitrary closures by public officials than from competition from global retail chains.

In fact, lower prices available in hyper-markets will allow more small traders to access cheaper goods that can be sold at lower prices to everyone. While some small traders may be disadvantaged, most will continue to have a comparative advantage in being close to many consumers, especially in the Metros.

OneIndia: Even when the political parties are speaking about the poor being deprived, wasn't it the failure of the Indian state itself that it failed to address their issues all these years? How much progress has the poor sections witness during the days of 'socialist days' in India? If we do not provide them basic opportunities in education, health and other development at the primary level, then there is no point in shouting that these people will be deprived in a liberalised economy. If Indian engineers can compete with the world today, then why not farmers and labourers, provided they have the training? By speaking in favour of protecting the poor against globalisation, is the Indian state actually exposing its failure in protecting their cause? Your views on this.

Dr Lingle: Pretending to act in the name of the poor is the last refuge of scoundrels! Rajiv Gandhi pointed out that for every rupee allocated in government budgets on behalf of the poor, only about 10% reaches them.

Perhaps the most egregious public-sector waste is in the name of educating the poor. It turns out that private providers of education serve the poor much better. As such, the government should turn to a voucher system to allow private education compete with public schools.

In all events, formal education is neither a necessary nor sufficient condition for economic success. People are not poor because they are uneducated. They are poor because they do not have jobs. There are not enough jobs being created because there is not enough new investment in capital that would allow incomes to rise. And the fault lies with successive governments that have been unwilling to undertake economic reform that would encourage more investment.

OneIndia: There is a view in India that a nation's infrastructure-building activity should be concentrated in the hand of the government and not private players. But if FDI in retail is allowed, then foreign forces are expected to boost the local facilities including infrastructure. Often, we see poor communication and transportation impede economic activities in rural and semi-rural areas of India. If foreign players help in improving roads, cold storage facilities and distribution networks of a remote member of the economy, then it is always welcome. Isn't it?

Dr Lingle: Many of China's initial big projects in physical infrastructure development involved private actors. For example, private developers provided motorways in Guangzhou under a build-operate-transfer (BOT) scheme. However, there is a tragic likelihood that the mental trap about markets and privately-owned, foreign capital continues to retard India's economic performance.

OneIndia: Will the landless and marginal farmers be affected by FDI in retail? Should FDI be allowed in various sectors gradually or at one go?

Dr Lingle: Whether or not FDI in retail occurs is not the biggest problem for landless, marginal farmers. As it is, their interests might be best addressed if they were granted title on unused or under-utilised land presently owned by the State. They can also benefit from having improved physical infrastructure, something that the State has failed to provide.

OneIndia: The days of the closed economy encouraged corruption in India. Today, several state-run projects breed corruption. Even liberalisation has seen some serious scams surfacing. Are these post-liberalisation scams a jerking impact seen in the first generation of the post-opening days or corruption has been permanently institutionalised in India, thanks to the old-day statist economy?

Dr Lingle: Corruption seems to have become embedded in the political DNA of India. It is like a cancer that will only spread once it is established. The only way to reduce corruption is to reduce bureaucratic interferences and legislative giveaways that provide opportunities for graft, theft and waste.

It is a matter of incentives, not individuals. Even honest people will be corrupted by incentives that provide them with payoffs by cheating the system and when there is limited likelihood of either being caught or being punished.

OneIndia: Do you think that the situation in India would have been different had it chosen a market economy in the days just after Independence? There is a Leftist orientation in Indian politico-intellectual mind and a distrust of foreign capital. As you said, we tend to equate colonialism with capitalism. This is clearly a lack of vision until our back touched the wall in 1991. We had the institutions to reap benefits of liberalisation of both economy and mind. Your thoughts.

Dr Lingle: Given the global climate at the time of Independence, it is unlikely that India's leaders would have chosen a Liberal path. But the problem arising from State involvements in the economy have been compounded over time, creating an entrenched sense of entitlement for certain groups, including the civil service.

It is tragic that India's democratic institutions create incentives to keep people poor so that they must depend on political parties to provide them with handouts. As such, vote banks depend upon continued poverty.

OneIndia: Countries like Mexico and Chile have led the way in economic deregulation but in states like the USA, the government is taking up more social responsibilities. Do you think it is an interesting global economic trend and India should learn from the Latin American countries?

Dr Lingle: India's leaders should heed the mistakes of Latin American countries whereby populist-democracy lead to utter destruction of their economies. India's should also look to the successes of Brazil and Chile from liberalisation and reforms that have moved their economies onto higher growth trajectories.

OneIndia: Will the GAAR (General Anti-Avoidance Rules) rule be helpful in evading corrupt practices as far as liberalisation in India is concerned? There is an uproar that the GAAR is not being adopted by the govt for it feels that it will lower confidence of the investors. What's your take on this?

Dr Lingle: The only way to reduce corruption is to reduce the politicisation of the economy and to end social or other privileges. More opportunities for bureaucrats or politicians to get in the way of what citizens wish to do breeds more corruption. Fewer opportunities will lead to less corruption.

Read the story in One India