Thursday, August 27, 2009

Mr.Guha’s bites on Professor F. A .Hayek and how India would have progressed if C Rajagopalachari had been India’s first prime minister instead of Jaw

The later musing is of Indiauncut blogger Amit Verma! I indeed mused similarly for long back.

Mr Guha wrote in 2007 in the Telegraph that:

  • "Milton Friedman, and Friedrich Hayek before him, floated the fantastic theory that those who believe in a free market necessarily believe in freedom of political choice. I say “fantastic” because this theory has been violated by countless dictators from Antonio Salazar to Augusto Pinochet, the violations encouraged, at every step, by factory-owners seeking to safeguard the operations of their factories from prying reporters of self-organized workers. The Hayek-Friedman thesis is also decisively repudiated by the governments of their own countries, the United Kingdom and the United States of America. These have always found dictators easier to deal with, and especially to sign arms and other contracts with. Here, too, the denial of democracy has been silently — and sometimes not so silently — hailed by the capitalist class."

The other interesting musings is from Ashok V Desai article in the same newspaper in six months latter.

  • “Industry in pre-independence India was concentrated around Calcutta in the east, Bombay in the west and Madras in the south. Of the three, industry in Calcutta was largely owned by the British. The Bombay and Madras presidencies were the home of Indian business, and the nationalists amongst them knew Congressmen from their provinces best. Of the latter, Vallabhbhai Patel and C. Rajagopalachari were the most prominent. By comparison, the north and the east were poor in patriotic industrialists.
  • Patel and Nehru were the two leaders closest to Gandhiji, most likely to succeed him. Gandhiji chose Nehru for prime ministership when the Congress was asked to join an interim government in 1946, and asked Patel to take a backseat. Patel died in 1950. In 1951, Nehru’s government introduced industrial licensing, and later used it to create government monopolies in a series of industries, including heavy machinery, fertilizer, coal, shipping and aircraft, and prevent new private entry into industries such as steel. In protest, Rajaji left the Congress in 1959 and founded the Swatantra Party. The tide of nationalization lasted into the Seventies, when banks were taken over; it ended only with the defeat of Indira Gandhi in 1977.
  • Suppose that instead of Nehru, Gandhiji had chosen Patel as prime minister, and that Nehru had walked out of the Congress and started a socialist party in the Fifties: how would that have changed India’s fate?
  • It would be wrong to think that Patel’s government in the Fifties would have been a liberal government in the modern sense. Patel, Rajaji and Nehru shared a common experience of British rule and apprenticeship with Gandhiji. The Indian economy was very different then — it was much poorer and less industrialized, and government was less important — its revenue was just 5 per cent of the gross domestic product. The government faced certain immediate problems; a liberal government would have approached them more or less as Nehru did. For instance, it would have had to tackle the problem of resettling refugees from Pakistan. There were no liberal alternatives to housing, feeding and supporting them.

I really don’t understand the above few lines saying that “a liberal government would have approached them more or less as Nehru did.” The today’s generation will think otherwise. But people like Sauvik, Deepak Lal, etc can say there musings that will be more interesting!

  • It is likely that a Patel government would have taken recourse to PL-480, although it might have increased domestic agricultural production more by leaving agriculture freer to market incentives. India might, for instance, have produced more cotton — that would have helped the textile industry, which then was large and competitive.
  • But it is fair to assume that a Patel government would have dismantled the import controls inherited from the War, and would not have introduced industrial licensing. During the War, India supplied a large volume of goods and services to Britain, which ran up a huge debt in the form of sterling balances. These were inconvertible into dollars because Britain had bought even more from the US without paying for it. But India could have used them to import anything from the Commonwealth — for instance, wheat from Australia, and machinery from Britain. India ran up an export surplus during the Korean War; it had so much foreign currency in 1950 that almost everything was on Open General Licence — that is, almost everything could be imported without a licence. So if the government had not launched the forced industrialization programme of 1956, if it had not wasted the sterling balances on building steel and heavy engineering plants, it could have maintained an open import regime throughout.

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