I had meant to link to Sandeep’s review of a book claiming that Nehru was a communist at heart. But I had to hold off because I wanted to write in some amount of detail about this. I am rather surprised that the entry did not get any comments.
I don’t want to get into arguments over semantics. But I do wish to point out that “socialist” means something very different from what it meant fifty or eighty years back. Now it has a much vaguer meaning, i.e. the government has some sort of heavy handed role in the economy. At that time, it meant that the government controls the economy completely. The only difference between socialism and communism was that a socialist thought that the same ends could be achieved without revolution, though not necessarily without violence. He would have prefered to achieve it through constitutional means if possible, or through a series of agitations and strikes if necessary. But the final result of both would have been the same, though a socialist would wish that the government be democratically elected.
Of course, when compared with what he really wanted to “achieve”, India truly fell short. So naturally Nehru’s intellectuals defined down socialism to mean some nice-sounding ideals and this is what most people think of when they think of socialism. After all, who could be against equality, removal of oppression, uplift of the poorest etc.? They also defined “capitalism” as the opposite of all these. I once heard a debate where a person who described himself as “capitalist” was asked: “So you believe in exploitation?” It wasn’t the questioner’s fault. That was the only definition of capitalism he had ever heard.
So the argument over whether Nehru was “only” a socialist or a communist at heart is less important than it is to understand how close we were to disaster under Nehru.
Well, almost all of Nehru’s actions point to him being a closet (?) communist. An example is his blind emulation of Stalin’s Five Year Plans. By its very nature such governmental planning is nothing but government control over production which is the underlying truth of communism.
In any case, socialism in itself is never the end. It is the intermediate stage while transitioning from capitalism to communism. So for a leftist, the ultimate guiding principle is a utopian communist state… something that USSR (Nehru’s ideal country) almost was!
Its clear that it was just because Gandhi’s influence loomed large over post-independence India, that Nehru chose to act like a social democrat.
But yes… its frightening to wonder what it would’ve been like if we would’ve continued unabated down Nehru’s path!!
We couldn’t have continued down Nehru’s path all that much because we were bankrupt. I meant what if we had followed a slightly different path. I’ve explained over at Sandeep’s.
How I would have loved to be that person who was asked “Do you beleive in exploitation?”.
Damn….
Not that it means anything – but the link to my post in the polls is dead(incomplete)
Nerhuvian socialism seemed to make sense for a newly independent nation. Aspects of this included pacifism (i guess partial…non-aggression seems more like it), universal self-determination, social justice and all that. Communism is a totalitarian state where everyone works of the society, and Stalin had his own tyrannical style of communism now branded as stalinism. Was Nehru a closet communist? Probably not, because while he did have socialist beliefs, Nehru also valued individual freedoms very deeply. India had ended a strong struggle for independence and the last thing he would ever consider would be a less free india. So to call Nehru communist would not just be patently wrong, it would also be slandering an idealists legacy.
Should we have gone another way? Probably not. We were on the right track in creating an infrastructure where capitalism could thrive till Indira Gandhi’s megalomanic policies in the late seventies threw us off track. If Nehru’s socialist policies hadn’t been the official policy of newly independent India, we would have gone down the path of south american countries which are still struggling for economic progress.
On that note, there was nothing with Five year plans. The idea is good, the problem is with implementing it. While a planned economy is the dream of all socialists, it probably will never work in a free society due to the inherent unpredictibility of the economy.
Hitesh, don’t you think you contradict yourself when you say that Five Year Plans are a good idea while in the very next sentence say that the idea would never work?
Regarding infrastructure building… just look at what India has managed to do in post liberalisation scenario and compare it to the 45-50 years of the pre liberalisation era. I don’t say that we failed to create any infrastructure pre-1991, but the fact remains that quality infrastructure is one of the demands of capitalism and we could’ve done much more had we not tried to become a socialist state under Nehru’s ‘idealistic leadership’
>> On that note, there was nothing with Five year plans
Sorry…I should’ve been more clear…I meant to type that there was nothing wrong with Five year plans except that in a free economy it wouldn’t work. In the early years it wasn’t a free economy, and rightly so. Why? Well, if we weren’t, there are various hypothetical scenarios we could consider. We might have ended up with huge monopolistic corporations like Japan. We might have ended up in complete chaos where nothing progress occurred. We could keep speculating on that. But by phasing in a capitalistic system, not only did we ensure that the situation is now conducive for individual entrepreneurship but also, a country where every industry is not controlled by monopolies. Not only that, we also ensured with a smooth transition that the chaos we see in Russia following the fall of communism didn’t happen in India.
Also, I don’t totally agree with you as to the magic of liberalization. Granted, on the surface it seems that liberalization directly and by itself led to a booming economy. But let us be skeptics for a moment and speculate: what would have happened, had liberalization happened, say in 1980? Would we be on par with the developed nations? Probably not. While liberalization opened Indian markets to foreign investors and corporations, it also happened just as the IT boom was about to begin. We have to remember that too, as we consider economic growth from a historical perspective. The IT boom was independent of India’s liberalization, it happened in the US. But the fact that our economic policies and labour resources were suitable at that very moment for growth of the IT industry in India led to an unprecedented spotlight on us, which in turn led to growth in other areas of Industry. Just the other day, the government released figures of a 7% growth, inspite of poor monsoons which indicates that there has been increased improvement in the manufacturing industries. This, 13 years after liberalization. So it makes one wonder whether it was just plain luck that liberalization and the IT boom occurred at the same time, and led to India becoming a economic power.
In India, socialism is key. There are a billion people. A purely capitalistic system would have led to a large large gap between rich and poor, where wealth would have been concentrated in a very small section of society. Both you and I know this would have been catastrophic consequences, considering the social makeup of the society. So to blindly deride Nehru’s socialist policies would just be just plain ignorance of the larger picture.
“How close we were to disaster under Nehru” ?? Nehru was prime minister for 17 years – long enough for a disaster to happen if India was really as close to one as you suggest. This is not to say that his adminstration was not flawed, it was. But its easy for us to criticise now – hindsight being 20-20 and all that .. you get the idea. For me, the advances that Nehru’s adnistration made far outweigh the many flaws that we’ve come to understand over time. Consider this: the progress India’s made in IT, is in some part a legacy of Nehru, who set up the institutions (Nehru’s focus on English medium institutes of higher learning) to make that possible.
I am also puzzled by your statement that we couldn’t have continued on Nehru’s path because India was bankrupt. But we did. And the subsequent adminstrations did even worse than Nehru. After Nehru, Indira Gandhi took India deeper into misguided socialism with nationalization of banks and other populist stuff. Ironically it was PV Narasimha Rao’s adminstration (btw the current prime minister was an important part of it) who first saw the fallacies in the Nehru/Indira Gandhi approach and DID SOMETHING ABOUT IT.
Murli, I was responding to Sameer’s statement about what would have happened if we had gone further down the Nehruvian path. I pointed out that we could not have, because we were bankrupt in 1991. We went as far as we could before disaster stared us in the face. Also see Sandeep’s blog for my explanation of what I meant.
Hitesh, give it up. If you have to give Japan as an example of how horrible things can get under capitalism, perhaps it is time to think long and hard about whether you are making any sense at all. In fact, you will be hard put to find *any* example of economies that have adopted capitalism even partially and have collapsed into the disaster zones that you are so afraid of. People were afraid that South Korea would collapse. It didn’t. People were afraid that the South American capitalist dictatorships would be as bad as the South American communist dictatorships. In fact, you’ll find that the capitalist dictatorships did better economically and they managed to shake off the bonds of tyranny and became democracies. While Cuba remains poor and a police state.
I am not advocating dictatorship. In fact I believe that rule of law is the most important part of capitalism. But your argument that Nehru protected us from some sort of collapse makes no sense whatsoever. If any collapsing has occurred, it is in the former socialist states. Your argument is outdated. You had better think of a new one.
Yes, Central Planning won’t work in a free economy. But perhaps you haven’t noticed that it did not work in any economy.
Hitesh, as for the “coincidence” of liberalisation and the IT boom taking place at the same time, have you noticed that we had similar coincidences waiting for us approximately once a decade? We bypassed the consumer electronics boom which Japan and South Korea picked up. We did not enjoy the manufacturing boom that China enjoyed. If we hadn’t driven out IBM, perhaps we’d have enjoyed a computer hardware boom.
And because of the strategic location of Bombay, a financial sector boom was there for the taking anytime we wanted.
So as I was saying, give up.
Hindsight is 20/20 but it isn’t that Nehru did not have anyone telling him that he was wrong. There is a long list of people. Start with Chakravarti Rajagopalachari who left the Congress and went on to start a political party in his seventies largely in opposition to Nehru’s plans to socialise agriculture. Rajaji was the man who coined the “licence permit quote raj” phrase.
B R Shenoy, one of India’s leading economists of the time, wrote a note of dissent to the Second Five Year Plan. He was systematically sidelined. More on Shenoy here and a chapter on him (pdf format) from the book Profiles in Courage.
Milton Friedman visited India in 1955 and 1963. He wrote two articles, the first was a memorandum to the then Finance Minister, C D Deshmukh. He was ignored. Here’s a book with those two articles. And Outlook’s review.
Ravi, maybe you need to have a different colour for hyperlinks.
Hitesh,
Have you read Singapore’s story – From Third World to First?
Also please explain how capitalism inherently leads to “large monopolies”? (What’s a small monopoly?)
People keep pointing to the IT industry as if it’s our saviour. Do you know what percentage of our money comes from IT? (Hint: It’s a low single digit.) IT just receives the most press, but it is hardly the reason for the change in the economic scenario.
But by phasing in a capitalistic system, not only did we ensure that the situation is now conducive for individual entrepreneurship
Oh please… I AM an individual entrepreneur, and let me tell you, there is nothing “conducive” about the situation. I had to spend more than two months in just paperwork to launch a business. I had to grease numerous palms, run from this department to the next, smile at the government scum that I despise.
but also, a country where every industry is not controlled by monopolies.
In India, the government is a monopoly in so many industries. And which other capitalist country has “every industry controlled by monopolies”?
Do you remember a time when you had to wait years before you could get your choice of Fiat or Ambassador? How about waiting years for a telephone connection? Or for a gas connection? Do you remember the freakin’ high STD rates till recently? How did that situation all change? By eliminating government monopoly, by making it a free market. Why couldn’t any of this have been done decades ago? Because Nehru strongly believed that the state should lay down the plan for economic growth and that the state actively needed to involve itself in industry. All this crappy “licence raj” is directly his legacy.
You might say, “but Indian industry was in no shape to compete on its own.” Well, you will never know, because Nehru never even gave them a chance.
Indian industry was in no shape? MadMan, in 1947, India was a net exporter of textile indutrial machines.
Yazad, you missed my point. I was merely pointing out an argument I’ve heard from many people about how we were weak and couldn’t compete. I disagree with it, as you do.
Woohoo!
When the Cartelians actually manage to point their guns in the same direction, carnage ensues.
MadMan, I agree with you and am simply substantiating your point. We seem to have misread each other a bit.
Yes Ravi. And we’ve just started. Carnage is a mild word to use when we’re in full flow 😉
One mustn’t look at the economy and society as separate. After independence, India was more or less mired in poverty with a very small prosperous overclass. Two centuries of colonialism and funding and manning of World War I(and world war II though it was indirect) had left India in a very bad position economically. The society was rife with casteism and communal politics. Punjab witnessed one of the biggest massacres in the history of the world. This was not the perfect condition for a free market to operate. Even a democracy wouldn’t have seemed very much possible. But we did it and we do owe it to Jawaharlal Nehru to some extent.
In the aftermath of Independence, various castes held monopoly on various trades. Trader communities were powerful in some sectors while some other communities controlled banking. For a more wide-based economic development socialist policies were needed. These were to form the basis for later market development. There was no one to invest huge amount of money in infrastructure like dams, power stations etc. Nor were there many industrialists rich enough to invest in steel plants etc. India did not have the huge corporations like in Germany and Japan to lead our reconstruction. Foreign investment was out of question as most international development and investment was concentrated on Europe and Japan. In such a situation, the Indian government did the right step in collecting funds on behalf of the masses and investing in infrastructural projects.
Secondly, I believe that people are too harsh on Indira Gandhi’s bank nationalisation. The bank nationalisation was a political move but it did reflect the anger of ordinary people at that time. Several private banks had collapsed with depositors getting back only a fraction of their money. Moreover, several banks were owned by holding companies with wide-ranging business interests and used the deposited money inappropriately. It was to check the malaise that a call for nationalisation rose up.
To answer the original question, no Nehru was not a communist. He was a socialist though he did not insist on the primacy of his beliefs. He might have been enamoured of the Soviet economic development as were his peers around the world at that time. Soviet Union had shown a rapid advance in economic development and seemed like a model for newly-independent decolonised countries. Of course, in hindsight the Soviet model seems flawed but Nehru lived in the 50s and 60s not in the 21st century.
I agree with Hitesh that India would have gone the way of Latin America if we hadn’t build up the infrastructural basis. Brazil is very similar to India and has one of the worst social inequalites in the world.
>>Even a democracy wouldn’t have seemed very much possible. But we did it and we do owe it to Jawaharlal Nehru to some extent.
Yum Yum, you’re incorrect when you say that we owe it to Nehru. If you’ve followed history especially of the few years that preceded independence, you wouldn’t say this. We owe NOTHING to Nehru on the count of keeping India democractic. If anything, Nehru was a power monger. He agreed to the partition simply because he stood to become the PM of free India, and not because of any noble intention.
>>For a more wide-based economic development socialist policies were needed. These were to form the basis for later market development. There was no one to invest huge amount of money in infrastructure like dams, power stations etc. Nor were there many industrialists rich enough to invest in steel plants etc.
Incorrect again. You say industrialists weren’t rich enough to invest… however, aren’t you aware that the first ever airline company/services was started by a private entrepenur? Now do you need me to spell out how much you need to invest to start an airline company? But look what happened to the airline company after the government took it over? Socialism–by this I mean state engaging itself in business–is EVIL. Socialism is also protectionism: your job is safe come what may, you are not accountable, your competence hardly matters…you get the drift?
>>Moreover, several banks were owned by holding companies with wide-ranging business interests and used the deposited money inappropriately. It was to check the malaise that a call for nationalisation rose up.
Like most of her policies, this was again a populist move. If private banks misused money, the appropriate action was to penalize them heavily. Was this difficult, given the tremendous monopoly over power Indira enjoyed? Nope. By nationalizing the banks, she only institutionalized incompetence. Ever stood in a queue to just deposit a cheque/cash in a nationalised bank back then? Ever bore those insulting condescensions of the clerks/officers at the bank?
>>To answer the original question, no Nehru was not a communist. He was a socialist though he did not insist on the primacy of his beliefs.
Wrong on both counts. Read the book–with an open mind, that is–and see for yourself.
>>Soviet Union had shown a rapid advance in economic development and seemed like a model for newly-independent decolonised countries
Are you aware how the “rapid advance” was achieved? Ever heard of the slave labour camps? That was the fuel for the “glorious” Soviet Economy. Agreed that its outward success might have formed an inspiration. But what about Nehru who visited the USSR several times, who knew the horrors intimately, yet found an excuse to explain away every atrocity committed?
>>Of course, in hindsight the Soviet model seems flawed but Nehru lived in the 50s and 60s not in the 21st century.
“Flawed” is a mild word you use, Yum Yum. Read the book again to trace Nehru’s “intellectual” development. He was, and remained a true Communist till his death. Mao’s purges excited him to no end–never mind that the millions killed were his (Mao’s) own countrymen. Periodicity plays an important part in shaping a person’s intellectual leanings, beliefs, etc, but once a ideology has been recognized and proven for what it is, it is either foolish, or criminal on the part of any person to continue to adhere to, and/or advocate it.
Yum Yum, I have already answered Hitesh on the Latin America comparison. Latin America as a whole is actually doing better than India these days. Are you seriously suggesting that India, where something like ten thousand people are hungry at any given time even though food is rotting in her godowns is doing better on social equality indices than any country except Sub Saharan Africa?
except *in* Sub Saharan Africa?
I will answer Ravikiran first.
Latin America is doing better than India? On what counts?
Argentina- The country is bankrupt. It is no longer the first world economy it used to be. It has been a democracy since the late 70s. Before that it went through a particularly vicious phase of dictatorship , whose brutal masters are yet to be tried in a court of law.
Paraguay- Basket-case. High inequality between the rich and poor.
Uruguay- Economy dependent on Argentina. See Argentina for details.
Brazil- Full-fledged democracy but recent in vintage compared to India. Brazilian economy was famous for its stratospheric inflation rates(1000% inflation etc). Extreme inequality between rich and poor. Rich live in first world conditions while poor suffer from hunger(being combatted by the present government). Poor education among the poor(College education is not easily achieved by the poor). Yet this is a country that is a case of optimism.
Peru- Was a dictatorship, now a democracy(4 years long if I remember right). High poverty and illiteracy.
Colombia- Drug wars and democracy, enough said.
Chile- Best case in Latin America. Strong vibrant economy but heavily dependent on copper. Some inequality but still the best case.
The above is just a small sample of what the state of Latin America is. The most glaring problem in Latin America is inequality. The rich have the money to invest in huge projects in South America but refuse to do so and instead invest abroad. Another facet is the lack of access to higher education for the poor. I have had collegemates who came from poor backgrounds and never had to give up education because of its cost. Today they are earning 5 figure salaries.
Agreed that there are problems of hunger, inequality and illiteracy in India which is magnified by our huge population. But it is definitely better than Latin America whose state can be best termed as ‘precarious’ both in political and economic terms.
A graph of inequality in Latin America will look like a cliff. For India, it is steady slope with a huge middle-class in the middle. No mean achievement for us. But we can do better.
Sandeep, I am not going to argue at the level of ideologies. Personally, I am interested in inquiry, examples and solutions.
We owe our country to everyone who fought for our freedom and to everyone who worked for us after independence. It takes courage and morals to stand up and fight a great power when the fortunes and power beckon. If Mr Nehru was a power-monger he could have taken up his comfortable wealthy living and went on to work for the colonial government. Instead he spend time in jail and anti-colonial politics. He did not even take part in the Home Rule project.
The question of partition is much more complex than blaming of Mr Nehru. It was an mixture of colonial intrigue, personal ambitions of native political leaders and the malaise within the Indian society that caused it. You would be interested to know that former British colonies show a pattern. Many British colonies were partitioned when the British left.
It is possible that India might have ended up like former British colonies like Kenya, Zimbabwe etc with a namesake democracy and one-party rule. Nehru was winning elections by huge margins and could have easily turned this into a justification for a dictatorship. He didn’t. Power-monger or not is a question of judgement. He certainly was not as power-hungry as many post-colonial leaders around the world.
Air-India was a corporation far ahead of its time and was one of the best in the world. I recently saw footage of the Beatles alighting at New York from an Air-India flight. The journey probably originated in London. Is this possible now? No. Not because Air-India is a public concern, but because of airline regulations around the world. It was airline regulations that killed the airline industry of most poor countries. The fact that Air-India was a public concern(with its malaise that you mention) compounded the problem. But I do agree that public corporations are not perfect.
But socialism is not simply about public corporations. It about socio-political aims such as upliftment of lower castes, development of backward regions, building a social infrastructure(schools, housing etc). The initial aim was to provide a model of development to be emulated by private corporations(that some like the Tatas did). I agree with you broadly that socialism is not perfect. I see it as a waystation towards later market reforms and development. The US built highways with public funds laying the foundation for expansion of car, transportation industry etc . The US and EU spend huge amounts of public funds for research and development. The fruits of this R&D are used by private corporations/firms. Public investment occurs in every part of the world. My original statement about lack of capital in newly-independent India remains. India is a huge country and the resources of a few business houses were not sufficient for basic development at that point of time.
‘Appropriate action’ can constitute anything. It could be fines, jail etc. Fines never intimidate corporations. It is looked upon as a cost of business and treated accordingly. The problem with classes/individuals stealing money from ordinary people is that such criminals go on to corrupt the whole system in order to go scot-free. Indira Gandhi simply destroyed these entrenched elite. The result is that people hailing from the middle-class are able to reach the top of banks. How many Indian Business Houses have CEOs/Chairmans who are not from the family of the promoters? Nehru’s public corporations created a new class of managers who could aspire to reach the top and a business culture that does not restrict control to a few families. These public concerns when privatised will become the truly meritocratic corporations of India. I am supportive of privatisation and do think Mrs Gandhi’s nationalisation went too far. I was only providing a context for her actions.
You certainly agree with the thrust of my argument. I am not fan of USSR or communism myself. Rapid advance was gained by forcibly obtaining savings(in effect paying less that what the labour entailed) and then reinvesting the capital. (So much for communism and its ‘to each according to his labour!’) Funnily enough, this was the method used by many Asian Tiger economies to fuel their growth. The ‘gulags’ did not constitute a huge part of the Soviet economy but it certainly was inhumanity of a horrifying scale. Maybe the horrors are the reason why Nehru did not implement communism in India. Maybe the horrors are the reason why Nehru let private companies operate and flourish.
You say: “Mao’s purges excited him to no end–never mind that the millions killed were his (Mao’s) own countrymen.”
I find the above statement not very believable. You will certainly agree with me that Nehru did not conduct any purge in our country.
Nehru was not a communist. He was not inciting a worker’s revolution. He did not implement land reforms. He also maintained distance from both the US and the USSR. He made a wrong judgement on China but did not flinch from arresting some China-supporting Indian Communists.
mmmm! That was a bit too long for my comfort. Anyway what is posted is posted.
to ravikiran: could you provide the name of the Orwell essay?
Yum Yum, I’ve provided the answer here. http://ravikiran.com/archives/000160.htm.
As for your argument that Indira Gandhi introduced some sort of meritocracy by nationalising banks, the same result can be obtained by letting MNCs into the country. If you’ve noticed, they always hire on merit and they force Indian companies to professionalise. I’ve always wondered why the Indian CEO of the Indian branch of an MNC is any less Indian than someone who inherited his Indian business from his dad. But the communists and the BJP-swadeshi walas think so, and they are wise men.
It is not easy to cover all issues in a posting format. Moreover, my posts are already too long for my taste.
How MNCs are different from Indian corporations?
Most MNCs tend to have shareholding and trading in their home countries. An Indian corporation listed in India will produce a shareholder culture domestically. With it will be created the auxilliary services like brokerages, investment banking etc. India has one of the oldest Stock Exchanges in the world, but it was restricted to a few communities. Yet, India has a better shareholder culture than the Asian tigers and China. I ascribe it partly to the history of our stock market as well as investment barriers that forced companies to raise money within India rather than raise loans abroad which would have short-circuited the ordinary masses. A shareholder culture gives ordinary people a stake in capitalism. You can call it ownership culture.
An interesting thing has been reported in newspapers here. MNCs were intially obligated to either set up joint ventures or sell shares in Indian stock markets. With restrictions being lifted, many are resorting to buybacks and the number of professionally run MNC shares has decreased drastically in Indian stock markets. This has been raised as a cause for concern a many ordinary Indians are getting cut off from having a chance to own some of the gains made through reforms and the biggest concern is that it might kill off the nascent middle-class shareholder segment.
I would say restrictions seem to have had good effects as well as bad effects. On balance I think we got lucky in creating basic institutions for future market reforms. This was something that Latin America missed and it suffers for it.
Thank you for posting the name of the essay.
Yum Yum, you are making it too easy for me. My point was that MNCs treat their *employees* better and you shift the argument to cribbing about shareholders.
As for the “institutions” that you are talking of, seriously, how old are you? Have you ever heard of the CCI? If you haven’t, it stands for “Controller of Capital Issues.” It was a typical Nehru-style institution whose basic purpose turned out to be to prevent people from raising funds from the stock market. The shareholder culture that you are so proud of took off only after the damn thing was abolished and replaced by SEBI. Besides, letting Indian companies raise capital from abroad has done more for disclosure norms than any “institution” Nehru set up.
Try again.
MNCs do treat their employees better than Business Houses controlled by promoter families. But do they treat their employees better than Public sector corporations? Surely you will agree with me that public sector corporations pamper their employees beyond our dreams. Also, as mentioned earlier they do not base hiring, promotions etc on the basis of family connections, caste etc. This provides an opportunity for all sections of the society.
What MNCs do well is to run themselves efficiently in service of their shareholders. This is what I understood from your previous post. I certainly don’t think they treat their employees like Maharajas. As for professionalising Indian companies, there have to be strong well-capitalised Indian companies in the first place. There were very few in Nehru’s time and a few more during Indira Gandhi’s time.
MNCs were indeed allowed to operate in India. Even under Ms Gandhi Coca-Cola and IBM operated here. Then there is the Union Carbide plant that caused the Bhopal gas tragedy- not a good example of professionalism I must add.
There are a host of reasons why MNCs are different from Indian corporations. I mentioned one earlier.
I am aware of CCI. A highly liberal regime that followed it brought the ‘Harshad Mehta scam’. Now regulations are tighter.
Agreed to some extent on disclosure norm. But those norms were not good enough to prevent Enron. None of the disclosure norms around the world are good enough. Disclosure norms that allowed Enron, Tyco etc don’t seem like improvements.
You have evaded my point of good companies(MNCs or others) participating in Indian stock markets and giving the ordinary Indians a stake in the reforms. Surely, developing stock markets here under our jurisdiction is a good thing. Moreover, if ordinary people see the benefits of ownership they might support the reforms even more strongly.
My basic thesis is simply this. Neither Nehru nor Indira Gandhi instituted their economic policies with future market reforms in mind. They were socialist in outlook. Some decisions were taken for political expediency. But this helped the development of some strong Indian corporations like State Bank of India,ICICI, ONGC, BHEL etc in the public sector and TISCO, TELCO, Reliance, ACC etc in the private sector. These corporations have built up huge assets and an Indian character under protectionist policies and were ready to face the market reforms. Their huge asset base means that they are not only capable of owning business in India but also go abroad. This is in a similar vein as Japan’s Sony, Mitsui etc and the Korean Chaebol, who became powerful under protectionism. They only difference is that the Indian economy was not export-driven. In hindsight definitely a mistake. Unlike Japan and Korea we did not receive massive foreign aid as part of the Cold War games.
Small reforms started in the 80s and then gathered pace in the early 90s(after a debt crisis).
All in all we got lucky though not as lucky as China.
There is a recent study by Dani Rodrik on India’s reform. Please google it. I am sure you will find it interesting.
I agree that autarky was not right. It might have been alright(though not advantageous) in the 1700s when India had 25% of the world GDP but not in 1950. The ‘land of milk and honey’ was now in 1950 the land of ‘the poor and the desititutes’.
The kind of planning followed was not completely right. It had actually started as a very lenient set up. But politics and bureaucray turned it into a vicious devise to restrict growth. One good aspect of the planning was the ‘Green Revolution.’ We could have followed the Japanese model of setting minimum investment targets, export-targets and encouraging corporations to achieve above them. India lost its way in 60s and 70s in several wars and political turmoil. We could have encouraged exports in the early 80s. By then the basic conditions for strong export-driven growth were there. We could have given Japan and Korea a run for their money. So there were opportunities lost but overall considering the adversities we faced we did alright.
If we had opened up fully to foreign direct investment immediately after independence we wouldn’t have achieved sustainable growth. Can one name a Malaysian MNC off the cuff? Are there Malaysian MNCs? Malaysia gained growth through foreign direct investment. But as labour costs are growing the Foreign MNCs are moving to China which has cheaper and skilled labour in abundance. Now Malaysia is feeling the pain. MNCs only need to care about their profits and their home countries.
When the US President travels he carries along American Business delegations. Chirac took a French business delegation to China. These MNCs benefit their home companies most and others less. MNCs cannot stand in for local corporations. They are different.
I am not a protectionist but reforms should be cascaded and tailored to the needs of each country. The government has a huge role to play in setting policies and encouraging industries. The government must also know when to stop interfering. It is a tricky thing to do but it is worth trying.
Lest I forget the original post, Nehru built the base for an independent non-aligned and future strong regional power. We didn’t get caught up in the game of big powers nor did we become a client-state. His economic policies were not perfect. It had its good and bad. All in all good work and he was no communist. His socialist leaning notwithstanding, a pragmatist.
I guess I am finished with this.
Yum Yum,
My friendly suggestion to you was to read the book, in the first place *before* concluding that Nehru was *not* a Communist. You’re also oversimplyfying things when you say that if Nehru was an admirer of Mao/a Communist etc, he would’ve conducted similar purges. One word: you are incorrect again.
Nehru *would* have conducted the purges had not the old leaders Rajaji, Patel, and others been alive at the time he was the PM. Also notice how he sidelined Rajaji to the extent that the venerable old man had to form his own party mainly, to fight communism.
Your point about there not being enough capital in the private sector holds little water. Again, the reference to Air India was only to prove that there was *indeed* money then, in the private sector.
Lastly, whatever the “Lofty” objectives of starting state-owned businesses, the fruits are still being borne by you and me–the massive drain of *tax payer’s money* in the form of loss making PSUs. Tell me something: you start a PSU to provide equal opportunity, to uplift the weaker sections, etc, and when this exercise ends up the way it has done now, what have you achieved? How much more will you spend in trying to revive sick PSUs?
Like Ravi said, the private sector *forces* people to become competent because that’s the only route to survive and grow. If your job is doled out to you regardless of your competence, there is little to say.
When Nehru/Congress inherited the colonial structure, he didn’t in all his infinite “wisdom” realize that those structures were built to ADMINISTER A COLONY, where laws and institutions were written and created so they could FAVOUR THE COLONISERS, AND NOT THE COLONISED. Again, as Ravi said, most Nehruvian institutions functioned as if they were meant to colonise people; the result was statism, where the government decides what is good for the people, and not the people who are given the freedom to exercise their will.
Under the Nehruvian administration India merely changed her colonial masters: from the English man to the last Brown English man to rule India. Unfortunately, this time around, the coloniser was our own.
Yum Yum, every time I answer your point, you try to wriggle out by changing the subject, so I will try to pin you down on the stock market topic.
1) You said that India has a better shareholder culture than East Asian economies.
2) I pointed out that this better shareholder culture came about after the abolition of the Stalinist CCI – an institution, which, true to its name, controlled the price of an IPO according to some arbitrary formula. It also decided according to arbitrary norms whether a company could in fact go public or not.
(I can also point out that the other Nehruvian “contributions” to the shareholder culture are the financial institutions controlled by the government which a) invariably vote in favour of “promoters” thus help prevent accountability and b) rig the prices of shares at the expense of hapless investors and taxpayers. That weird innovation unique to India exists till now, so let’s set that aside for the moment.)
3) You changed tack and pointed out that the abolition of the CCI “resulted in” the Harshad Mehta scam. (Let’s once again leave aside the counterargument that the Harshad Mehta scam was caused, not by bad regulation of the stock market, but by bad internal practices and outright corruption in banks – mostly nationalised banks, but also ABN Amro bank. )
So how does point 3 square with point 1? If your point 1 still stands, i.e. shareholder culture in India is good nothwithstanding anomalies like the occasional scams we are hit with, then what do you expect to prove with point 3? Are you saying that the stock markets functioned better when the CCI was throttling them? If you are not saying that, then point number 3 is a non-sequitur.
If you want to make a coherent argument in support of your claim that Nehru set up good institutions, you will have to actually claim that CCI did some good to the stock market culture in India rather than throttle it, as would seem to a casual observer. Try to make that claim instead of trying to score tactical points against me.
No point-scoring for me. I take a more general view while you want me to deal with specifics. Also I am indeed straying from the original points. My mistake
India has a better shareholder culture than East Asia. It is a comparison.It doesn’t say we are perfect. So the two points square up. Indian shareholder culture is not the bequest of CCI or Nehru. It started out in the early 20th century. But it was in the hands of a few communities who had the skills to service shareholder capital. Restrictive practices ensured that capital did not migrate to the rich countries as it happened to Latin America. The presence of capital(however a smaller pool than the real potential) ensure that there were services for this capital(brokerages, investment banking though it was not known as so then.) One big problem facing China is lack of the requisite skills. They wiped out the stock market and are finding it tough to restart after all these years. Moreover there are fewer skilled investors. Capital must stay inside so that people can service it. Brokers, traders and bankers must have capital to carry out their trade. If capital flows abroad these people would have had to sit on their hands or go and make bhelpuris. It would have also short-circuited Indian investors from Indian companies. You brought up CCI. Like central planning it grew more and more restrictive without an understanding of original intentions. So what? Capital stayed here, there was no capital-flight and thats my point.
Note: Capital flight needn’t be a problem if there is complete free trade. That means free movement of not just goods and capital but also free movement of labour(services.)In the days before computers, in face of a capital flight brokers and traders would have had to be physically present in London or New York to service the capital that went there. We all know that even today migration of skilled people is restricted. So we are not dealing with true free-trade. Hence restrictions were needed.
Looking back, my ‘Harshad Mehta scam’ was a tactical reply. The point is correct but was unwarranted. CCI doesn’t have anything to do with what I really said.
CCI or no CCI, my point is capital stayed inside, Indian corporations were forced to mobilise capital within India creating at the very least preserving an investor and service community and finally MNCs are not committed to doing that here, not even today under a highly liberal financial regime. They would rather not be registered in Indian stock markets. As mentioned in ‘Vision 2020’ I guess they think that Indian small investors suffer from “lack motivation.”
Restrictive practices and promotion of a few corporations is part of the initial development phase. In Japan and Korea shareholding was restricted and favoured corporations provided cheap capital. No different from India.
The point about better shareholder culture came when I was discussing “How MNCs are different from local corporations.” I do agree with you on autarky, that CCI did I reiterate my point MNCs cannot be a substitute for development of non-family based corporations in India. The latter was achieved by creating public corporations. So the argument that “the same result can be obtained by letting MNCs into the country” does not hold. This is true of banks, manufacturing and services.
The fifth paragraph is my basic contention.
__Sandeep you said: “When Nehru/Congress inherited the colonial structure, he didn’t in all his infinite “wisdom” realize that those structures were built to ADMINISTER A COLONY, where laws and institutions were written and created so they could FAVOUR THE COLONISERS, AND NOT THE COLONISED.”__
So he preserved colonial structure(and class structure too.) True.
But you also say that Nehru was a communist.
Communists want to destroy the class structure and colonial structure to build a new order. That is what they call ‘revolution.’
Now how do the two contentions hold together?
You say “Nehru *would* have conducted the purges had not the old leaders Rajaji, Patel, and others been alive at the time he was the PM.”
This is pure conjecture. You are now writing alternate “what-could-have-been” history. There is nothing wrong with it. But it didn’t happen. Yes Patel was more of a conservative compared to socialist Nehru. Point taken. But it doesn’t prove anything. Rajaji was a great man, but politics is competitive. Nehru won. I do respect Rajaji and I think he could have steered the country well.
Sandeep,
PSUs, subsidies etc are transfer of wealth from the upper class to the lower class. Money is collected mostly from the upper class/middle class and redistributed to the lower class/middle class(though in practice a lot of it is stolen and the middle class corner a more than fair share.) Obviously, the lower class benefits. Why do the upper class go along with it? Firstly, because it is a kind of insurance policy. It keeps the lower class happy enough not to take up rebellion and destroy the status quo. It insures their comfortable position. Secondly, out of decency. Nobody wants to see poor people dying in the streets. After all we are all human beings.
You talk about the problems in reviving sick PSUs. I agree 100%. But if they are sold out or closed down lots of people are going to get unemployed. I know that in the “long run” they will get a job. But what happens while they are unemployed? Do you think they will tell themselves “thats life!” or sit cheerfully expecting the job that will come “in the long-run.” We are talking about massive number of people going unemployed. What if they start rioting? or take up guns? This has happened before. What if this happens on a massive scale? PSUs were started with a large number of objectives with job creation being one of them. This was the real political reason for creating PSUs. The good and the bad that came with it are the secondary consequences. Politicians have to deal with the economic implication that you mention and they also have to deal with the social and security implications. It is a balancing act. Let us be fair to the politicians on this tough job of theirs.
Before Independence, the most poor and the destitute did not have a voice either with the British or with the Independence movement. Poor people died of starvation on the streets of Calcutta at the time of World War II. Neither the British nor the Indian political leaders cared. The Independence movement drew its support from the upper class and the middle class. The poor didn’t figure in their calculation (info from the writings of Swaminathan Ankelsaria Aiyar, an ardent supporter of free-markets.)
But after Independence it changed. Everybody had a vote. The poor were the majority. Their needs had to be taken into consideration. India never had massive famines again.
Why did I tell this little story? Because you said that India changed from the hands of British colonialists to the Indian ones. That is incorrect. The British had no accountability to Indians. They didn’t care about our needs. Hence several massive famines and large-scale deaths.
Indian politicians are not angels. There is massive corruption. But if there is one thing they fear, it is elections. They know that they cannot get away from the people. Chandrababu Naidu was thrown out by the people in a landslide. There have been so many reversals in several elections.
So the Indian establishment is not colonial. But India needs to democratize and decentralize further. No question about that. But India is a full democracy and thank god those British imperialists were thrown out.
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nehru is obviously a socialist…he always went for state intervention in the economy and implemented five year plany..on the lines of stalin…hez more soialistic- ajit reddy nandyala