Suppose that you want to learn about how the poor are doing under reforms. Without knowing anything about the reforms and how they’ve been doing, I can think of at least 3 possible inferences that I can draw from a study.
| Inference | Policy change required | |
|---|---|---|
| 1 | The poor have done worse under reforms. There are more poor people than before. | Reverse the reforms. Go back to Socialism. |
| 2 | The lot of the poor has improved marginally under reforms. But when you look at the situation in detail, you learn that the situation of the poor has improved the most where the reforms have proceeded the most. It has improved the least, and even worsened in some cases, where the reforms have not taken place. | Reform faster. Don’t spend your time handwringing over whether to reform or not. Just go ahead and speed up the reforming. |
| 3 | The poor are “falling behind” because the reforms are moving too fast | Keep up the reforming, but slow them down. |
I have not listed all possible inferences. I may not even be correct in saying that the policy changes on the right will necessarily follow from the inferences on the left. All I am doing is pointing out the importance of being precise. As you can see, small changes in what you conclude on the left hand side lead to drastically different prescriptions on the right hand side. If you imply that the state of the poor has gotten worse when you actually mean that it hasn’t improved fast enough, you are actually doing a disservice to the debate. If your article has any impact, then it will result in slowing or reversing of reforms and it will be the poor that will be hurt the most.
But that is what Dilip D’Souza has done. Read the article (which has also been published in the Hindu). Without reading his comments on Yazad’s post What is the overwhelming impression that one gets? He says that he is seeing more poor people than before. He doubts the figures that [according to my calculation ] say that there are 4 crore fewer poor people than 15 years back. Yes, he says, reforms must continue. But he has also scorned the claims of the free-market reformers who say that free market reforms are the only way to get a country out of poverty, so the possibility exists that he is talking of some other kind of reforms.
It is not just Dilip. Every single article I have read that “raises questions” about the impact of the reforms on the poor follows the same pattern. The author is invariably ambiguous about the claim he is making, whether he is saying that reforms have hurt the poor, that they have left the poor behind or that they have not reached the poor at the speed he would have liked. This might look like a small difference in wording, but the lessons to take away from them will be poles apart. The author may not know which inference to draw. But there is no excuse for failing to recognise that there is a difference.
The usual reason given for making alarmist arguments is that it is a way of raising an alarm. We are getting too complacent about liberalisation. Saying “It has not reached the poor! In fact the number of poor has increased!” even though the statement is an exaggeration, is a way of making people sit up and take notice.
But what is the point of raising an alarm that has a 66% chance of being misinterpreted? This is not an alarm in a literal sense after all, where the need to make a loud noise signifying danger is more important than getting across in words what the danger is. Surely, the message of the danger can be conveyed in precise words?
Agree… Agree… Agree…
That’s quite an event…Swami and Ravikiran agree on something! Wow!
By the way, I want all of you to visit my blog and leave a few comments….I want some inspiration to begin blogging once again.
Ravi,
I like your well written post on this… Very well said.
Excellent. But where’s Sudhakar?
My dear Amit:-
But where’s Sudhakar?
Not here.
Why? Have you been missing me? Worry not, want not. Tie a knot.
I am thinking of not going into the teaching-writing business!!What do you think? Will I not make a success of it?
Sudhakar Nair
sudhakar@easy.com
[...] to readers of (’centre-left’) publications like the Hindu and Frontline. In an excellent post, Ravikiran proves that at the core of [...]
Good post Ravi:
What we still need to advance from here is to get some hard statistics. Which brings up a question – Why are Business schools in India silent spectators in this debate ? B-schools in the U.S. collect and interpret mountains of data all the time. There is a lack of similar effort from Indian Academia particularly the IIM’S. Puzzling and disappointing. A big part of any reforms package should be data collection and interpretation to better guide the reforms. Otherwise we are shooting in the dark.
- Murli
Hi Ravikiran,
You are right about well-known journalists writing non-sense articles in newspapers. They may be well-known because they may write well; but it doesn’t mean that they have done their homework before they have come to their views. This is not intellectual dishonesty, but intellectual bankruptsy.
Any person who has well studied and thought about development of nations can see that the poor gain, but not much, from economic reforms unless social reforms precede or atleast are implemented in parallel. We can see how the Chinese and the various Asian tigers developed; in every case Social reforms preceded economic reforms. To prevent major differences in rise of incomes, this is absolutely required. You can read Amartya Sen’s ‘Economic Development and Social Opportunity’ to see clear examples and data.
Sincerely,
Subhas.
Murli, B schools do collect statistics, but they are constrained for resources. Indian B schools simply don’t have the kind of money American B Schools have.
But more importantly, data collection is much tougher in India than in the US. There are a lot of bodies that do collect data – NSS, CSO, NCAER, CMIE, etc. The problem is, there is a LOT of disagreement over what the data means. Also, because India has a very very large underground economy, the problem gets worse.
For example, we know that employment in the organized sector has been going down over the past few years. That looks like a bad thing, but it turns out that the organized sector employs only 10% of the labour force. The rest are employed in the informal sector and the employment there is improving.
Now most of the anti-reforms guys point to companies that are shutting down and say that reforms are screwing workers. But the companies are shutting down because of competition, and the competition is coming from companies that are employing these informal labourers.
If liberalisation has led to more companies and they are employing more workers (who are paid lower) and it has led to shutting down of companies which used to employ unionised workers at high wages, is it a bad thing? If you are really concerned about the poor, you should be happy, because the poor are benefiting at the expense of the middle-class unionized labour. But if you are a communist (or an editor of “The Hindu”) you will conclude that it is all bad. Some workers are losing their jobs and others are being paid “low wages”
We evil supporters of liberalisation claim that this is a problem only to the extent that 1) existing companies can’t lay-off workers because of strict labour laws while 2) new companies can set up plants with fewer workers and they can outsource their production to small scale companies which ignore labour laws.
So our “obvious” solution is to liberalise labour laws so that 1) Existing companies can lay-off and save their plants rather than shut down them down and 2) Other companies feel confident enough to hire people formally – and those who are now working as casual labour get some formalised protection rather than nothing at all, as the case is now.
Their “obvious” solution is to “enforce the existing laws strictly” i.e. extend the current draconian laws to the informal sector too.
We both laugh at each other. We point out that the current laws led to the inspector raj without helping the poor one jot, so what chance does it have of working once again? Their response is usually to accuse us of being shills for the rich industrialists.
But we have facts on our side. I myself grew up in a Bombay where a factory used to close down every month because the owners would rather shut down their plant than give in to union demands. And this was before liberalisation.
Anyway, the point is, the whole purpose of this rant is to point out that
1) The data is hard to collect
2) Interpreting the data is hard
3) Things are not helped by the fact that while one side argues with facts and data, the other side essentially implies that the figures showing that the lot of the poor has improved are coming only because the ruling class wants it to come, which is one step away from claiming that the statistics are fudged.
These three reasons (and #3 is the most important IMO, followed by #1 and #2 in that order) ensure that arguments over reforms usually don’t move beyond the very basics.