Friday, May 31, 2013

Interesting reading

Bibek on "Borrowing from George Orwell's evocative descriptions in 1984, there are the Proles (Indian poor) and NAC represents the "Inner Party" - this is crony socialism at its worst"

Rajan asks "Can countries without a reliable and effective legislature or legal system do better to protect against downturns?"

Food Security in America

Truth must be told- "Then prime minister P.V. Narasimha Rao, who already had a blueprint for reforms (inherited from the outgoing regime led by Chandra Shekhar), first turned to I.G. Patel, who declined the job on account of failing health. Patel recommended Singh. The rest is history. The dramatic turnaround of the economy, together with Singh’s understated demeanour, made him the darling of the middle class and the Congress party."

Modi, anti-incumbency benefit BJP, but will it last until 2014 polls?

Economic history of India

Gurumurthy has great article in today's BL.  Its a must read. A bit from the article:
  • India could never have been an agrarian economy then as it is now, given India’s share in world manufacturing at 24.5 per cent in 1750 and with industrial employment then estimated at between 21 and 28 per cent. It was the collapse of Indian industry during the colonial period that drove people back to the farms. This kind of widespread and widely shared economic activity would not have been confined to the minuscule Bania community.
  • There is need to recall, re-author, and review Indian economic history, which is even now a prisoner of the Marx-Weber perspectives.

Wednesday, May 29, 2013

Rural Gandhi vs Urban Ambedkar

From Niranjan Rajadhyaksha's article in today's Livemint:
  • Indian public policy suffers from a well-known Gandhian bias, with a pious belief in rural development even though development patterns the world over show that countries have emerged out of poverty through urbanization. B.R. Ambedkar, who had a very direct experience of social oppression, had little patience with the glorification of village life: “The love of the intellectual Indian for the village community is of course infinite, if not pathetic… What is a village but a sink of localism, a den of ignorance, narrow mindedness and communalism?”
  • But what is less well known is that Ambedkar was a trained economist who argued in one of his earliest papers, written in 1918, that India needed to help people migrate from agriculture to industry: “A large agricultural population with the lowest proportion of land in actual cultivation means that a large part of the agricultural population is superfluous and idle…this labour when productively employed will cease to live by predation as it does today, and will not only earn its keep but will give us surplus; and more surplus means more capital. In short, strange as it may seem, industrialization of India is the soundest remedy for the agricultural problems of India”.
  • There has been a robust debate in India on the relative merits of the Gandhian versus Ambedkarite visions on the direction the country should take in the future. The varying demographic trends in modern India—especially the rapid decline in rural population growth in some states—could create disagreements in the political system that in some ways echo the old debates on a rural versus urban future.

Tuesday, May 28, 2013

Ambedkar's free market ideas in Tamil

Here is my Tamil article on B R Ambedkar's free market economics. This article may be the first one to talk about Ambedkar's free market ideas in Tamil magazine. The English version appeared in various publications. See here 1, 2 and 3.

Monday, May 27, 2013

Nerhu vs Rajaji & Masani

Seetha has a great article in today's ToI. She asks "What if India had followed Masani's and Rajaji's vision rather than Nehru's?" A bit from it:

  • "There will be no public functions to mark the 15th death anniversary of Minoo Masani, co-founder of the erstwhile Swatantra Party, even though since 1991 the country has been travelling the road he tirelessly championed for 40 years along with another political stalwart, C Rajagopalachari or Rajaji - that of a liberal, market-oriented economy. But Masani, too, would shudder to have his name linked with all that is happening today, in the name of the model he advocated."

Monday, May 20, 2013

Amartya Sen on Hayek's The Road To Serfdom

For record, I reproduce the full review article by Professor Amartya Sen on Professor F A Hayek's one of the greatest book The Road To Serfdom. This article was first published in The Financial Times on September 20, 2004.

Friedrich Hayek's combative monograph The Road to Serfdom had a profound impact on political, economic and social thinking in the decades that followed its publication 60 years ago, serving as an intellectual manifesto against socialist planning and state intervention. But are Hayek's ideas and arguments of any interest today, after the downfall of communism and the emergence of neo-liberalism as the dominant ideology of contemporary capitalism? I would argue that they remain extremely important.

Consider Hayek's insistence that any institution, including the market, be judged by the extent to which it promotes human liberty and freedom. This is different from the more common praise of the market as a promoter of economic prosperity. A huge part of economic theory is concerned with the prosperity argument, going back to Adam Smith and David Ricardo. That connection is indeed important, and it is not surprising that so much attention has been devoted to seeing the market mechanism from this perspective - defending its achievements as well as disputing particular claims and proposing qualified endorsements. Yet Hayek was surely right to insist on clarity regarding the purpose of seeking prosperity. Markets have to be judged, he argued, by their role in advancing freedoms, not just in generating more income (as Hayek once said: making money can be of interest only to the miser). This integrative perspective demands that we be concerned both with the outcome of market processes (including the economic prosperity it may generate and the extent to which that would advance human freedom) and with the processes through which these results are brought about (including the liberty of action that people have in an institutional system).

It is the perspective of seeing markets and other institutions in terms of their role in advancing freedoms and liberties of individuals that Hayek brought into singular prominence. It may be pointed out, in contrast, that despite the title of Milton Friedman's famous book (with Rose Friedman), Free to Choose, the criteria by which Friedman tends to defend the market mechanism are not liberty and freedom, but prosperity and utility ("being free to choose" is seen as a good means - a fine instrument - rather than being valuable in itself). Even though a few other economists, James Buchanan in particular (and, to some extent, John Hicks), have presented insightful ideas on a freedom-centred line of reasoning, it is to Hayek we have to turn for the classic articulation of this way of seeing the merits of the market mechanism and what it gives to society.

I am not persuaded that Hayek got the substantive connections entirely right. He was too captivated by the enabling effects of the market system on human freedoms and tended to downplay - though he never fully ignored - the lack of freedom for some that may result from a complete reliance on the market system, with its exclusions and imperfections, and the social effects of big disparities in the ownership of assets. But it would be hard to deny Hayek's immense contribution to our understanding of the importance of judging institutions by the criterion of freedom.

A second contribution of Hayek is of particular relevance to thinkers on the right of the political spectrum. In The Road to Serfdom, he gave powerful reason to indicate why explicit provision has to be made by the state and the society for the deprived and the dispossessed. While Hayek is often taken to be uncompromisingly hostile to any economic role of the state (other than what is needed to support the market mechanism), and certainly late in his life he gave grounds for thinking that this could indeed be his view, nevertheless in The Road to Serfdom Hayek's position is much broader and inclusive than that. Now that the welfare state is often under such attack, it is worth recollecting that the pioneering manifesto that championed the market mechanism on grounds of freedom did not reject the need for a welfare state and provided a reasoned defence of it as an institutional necessity.

A third contribution of Hayek is of particular interest to those on the left of the political spectrum. Hayek's critique of state planning is mainly based on a subtle psychological argument. He was particularly concerned with the way centralised state planning and the huge asymmetry of power that tends to accompany it may generate a psychology of indifference to individual liberty. As Hayek put it: "I have never accused the socialist parties of deliberately aiming at a totalitarian regime or even suspected that the leaders of the old socialist movements might ever show such inclination." One of Hayek's central points was that "socialism can be put into practice only by methods of which most socialists disapprove".

We can hardly ignore the massive accumulation of evidence - before and after publication of The Road to Serfdom - of tyrannical use of bureaucratic power and privilege, and the political and economic corruption that tends to go with it. Hayek's central point here was to note that even though socialism has a strongly ethical quality, that is not in itself adequate to guarantee that the results of trying to implement it will be in line with its ethics, rather than being deflected and debased by the psychology of power and the influence of administrative arbitrariness.

Hayek was insightful in drawing attention to a basic vulnerability that goes with unrestrained administrative authority, and in explaining why social psychology and institutional incentives are extraordinarily important. To take the massive evidence in socialist practice of departures from expected behaviour to be no more than easily avoided individual aberrations would be comparable to blaming the "few bad apples" to whom the leaders of the coalition forces point in Iraq when they refuse to consider the systematic corruptibility underlying the torture and brutality of an unrestrained system of imprisonment. Incidentally, Hayek's psychological insights into administration also tell us something about the genesis of those terrible contemporary events.

Our debt to Hayek is very substantial. He helped to establish a freedom-based approach of evaluation through which economic systems can be judged (no matter what substantive judgments we arrive at). He pointed to the importance of identifying those services that the state can perform well and has a social duty to undertake. Finally, he showed why administrative psychology and propensities to corruptibility have to be considered in determining how states can, or cannot, work and how the world can, or cannot, be run.

As someone whose economics (as well as politics) is very different from Hayek's, I would like to use the 60th anniversary of The Road to Serfdom to say how greatly indebted we are to his writings in general and to this book in particular. Dialectics is critically important for the pursuit of understanding, and Hayek made outstanding contributions to the dialectics of contemporary economics.

The writer, Lamont university professor at Harvard University, was awarded the Nobel prize for economics in 1998.

Tuesday, May 7, 2013

Professor Amartya Sen is wrong, again

10 reasons why Amartya Sen is wrong about food security bill

Stuck record: Why Amartya Sen is wrong on food security again

"A report by lined to a very senior journalist said that on August 31, Manmohan met UPA chairperson Sonia Gandhi and told her that his office had cleared the questionable coal allotments on the recommendation of her political secretary Ahmed Patel, thus washing his hands of the tainted allotments and telling Sonia  that he had no role or interest in determining who the  beneficiaries should be. And laying the blame close at the party’s door, the PM said that his then principal secretary T K A Nair had merely coordinated  the allotments as desired by Patel. No Pundit is needed to say that Patel means Sonia herself. But who will investigate Manmohan  when he is the Prime Minister? And who will investigate Patel when Sonia is the president of the party which runs the government." More here.

Wednesday, May 1, 2013

"Economic reforms are very important for creation of wealth"

The below is a bit from the interview of Mr.Chandrababu Naidu, former Chief Minister of Andhra Pradesh:
After losing two elections, are you regretting the economic reforms you initiated ? 
No. I have no regrets. In hindsight, I think I should have gone with reforms carefully, in phases. Had I done so, the state would have been on a different footing altogether by now. Today both people are suffering and I am also suffering. I am now making extra efforts to educate the public about my policies. 
So you are not going to give up on economic reforms, right? 
Economic reforms are very important for creation of wealth. I am conscious now of the importance of taking the benefits of such economic reforms to the common man. We have to balance between reforms and their benefits. Otherwise there is no meaning for economic reforms. 

Interesting reading

Why Indian economy slowed? 

Dr. Bhim Rao Ambedkar had cautioned us in his speech on November 4, 1948, delivered in the Constituent Assembly that: “The form of the administration must be appropriate to and in the same sense as the form of the Constitution ... [It] is perfectly possible to pervert the Constitution, without changing its form by merely changing the form of the administration and to make it inconsistent and opposed to the spirit of the Constitution … Constitutional morality is not a natural sentiment. It has to be cultivated. We must realise that our people have yet to learn it.” More here.

"A laissez faire economy is characterized by the absence of non-market pressures such as taxes, subsidies, tariffs, though the very definition of a free market economy has been the subject of vociferous debate. In a free market/economy, individuals are free to contract, where the only regulations, in theory, would be to safeguard against coercion and theft. Certain economists have postulated that competition would thrive in a free market economy, perhaps even through a praxeological approach. However, given the different theoretical models of free-market economies and the opposing practical reality(ies); class differences, income inequities and the resultant dominating powers do allow for a powerful class to emerge and skew market conditions through monopolies and the abuse of dominant positions." More here.