‘Free’ India’s early leaders distrusted profit and free enterprise. They fought long, courageous battles to gain political freedom for their countrymen, but did not have quite the same respect for economic freedom.
India’s history of colonialism was one reason for this. Trade brought imperialism to India. First, the East India Company arrived, ostensibly as peaceful traders. Then, with just a flip of the page in a book of history, the British took over. After a long and bloody freedom struggle, who could blame Indians for being distrustful of trade?
Amit Varma recently won the Bastiat prize in economics at a ceremony in New York. Modulo the recent popularity of Freakonomics and the like, way too much economic literature tends to be PhD’s talking to other PhD’s. The Bastiat award, on the other hand, recognizes econ writers who reach out to the intelligent EveryMan with a day job rather than the Ivory Tower. And Varma’s latest piece delivers on this promise well.
For example, he captures well the underlying emotional / philosophical biases many have with market vs. government action -
Some of the truths of economics happen to be unintuitive–spontaneous order, for example, or the almost banal fact that trade leads to mutual benefit. This was especially so in the context of those times. As Gurcharan Das wrote in India Unbound:
In a society steeped in feudal traditions and generations of economic stagnation, it is difficult to think of positive-sum results. Everyone is programmed to think that “my success can only come at the expense of your failure,” and “I can only get more land by taking it from you.” The government is “mother and father,” protecting me from my rapacious brother.
Sadly, in an election season where mortgages have become a morality play and trade a demon, many of these lessons bear repeating in this country as well.
Particularly eye opening to me was Varma’s arguments for why an Industrial Revolution has yet to occur in India –
…it is a failure of India that 60 percent of India depends on agriculture for a living–in most developed countries, that figure is closer to 5 percent. This is despite India achieving an agricultural surplus long ago, which should, in the normal course of things, have triggered an industrial revolution.
No such industrial revolution took place because of the many restrictions on business. Some of those have been removed–many other haven’t. Starting a business is still a nightmarish process: In their 2005 book, Law, Liberty and Livelihood, Parth Shah and Naveen Mandava wrote: “Entrepreneurs can expect to go through 11 steps to launch a business over 89 days on average.” (In Australia, it takes two days.)
Industrial vs. IT Services as the path to growth is a frequent discussion topic on SM. We correctly laud Indian IT service sector giants like Wipro who employ some ~80,000 employees worldwide. However, standouts like Wipro are comparatively few and far between and their example is tough to scale to Indian population proportions.
By contrast, a single Chinese electronics factory can employ >250,000 and ones that employ 50,000 aren’t hard to find. Not only is this path is more replicable BUT those particular individuals were far more likely to have been rescued from the cusp of poverty vs. the IIT’ians at a Wipro. Both types of development are needed for sure, but when you’re talking about the Desh, scale is a mighty big consideration.