Earth to Mr Jaitley: socialism is not pro-poor, markets are not anti-poor

http://firstbiz.firstpost.com/budget/earth-to-mr-jaitley-socialism-is-not-pro-poor-markets-are-not-anti-poor-90604.html

So why did the Narendra Modi government, whose high-pitched pre-election rhetoric promised a decisive rightward shift in the management of the economy, debut with a budget that would have done the Congress proud? This is something both Congress president Sonia Gandhi and former finance minister P. Chidambaram have smugly pointed out.
This piece by M. K. Venu argues that the maiden budget was `socialist’ because Modi wanted to be seen as pro-poor. Venu quotes finance minister Arun Jaitley telling him in an interview done for Rajya Sabha TV that in a country with so many poor people, any economic philosophy which is totally market based will not work. Listen to the interview here.
That is the problem – the assumption that socialist policies are pro-poor and market-friendly policies are not.  This fairly widely-held assumption is itself based on two wrong assumptions, one about socialist policies and the other about pro-market policies.
That socialist policies are pro-poor flies in the face of evidence from India itself. India’s economic policies were overwhelmingly socialist before 1991. Indira Gandhi’s socialist agenda got an emotional anchor, as it were, with the Garibi Hatao slogan. Apart from the plethora of anti-poverty schemes, all economic policies supposedly had a pro-poor focus. And yet the pace of poverty reduction has been faster post-1991, once India embarked on pro-market policies!
All manner of subsidies have been rolled out in the name of the poor; any withdrawal is slammed as a move to abandon the poor to the vagaries of the market forces. But, barring a few, these subsidies really go to the better off. The poor are anyway left to the market forces. Take Delhi, where highly subsidised water and electricity supplied by the government go to the middle classes while the poor, who live in slums and unauthorised colonies, pay several times more for the same facilities supplied by the market. Yes, the rates are exploitative but the so-called pro-poor state is just not present in these areas peopled by the poor. Yes, the issue is that of governance, and that precisely is the point. Good governance is not about socialism or capitalism; it is about how efficiently the state goes about fulfilling its responsibilities.
Now for the other bogey that Jaitley seems to be mindlessly parroting – that a pro-markets approach necessarily neglects the poor. This stems from the trenchant criticism by the critics of socialism of the dole-centric approach to helping the poor, especially the rights-based entitlements legislations that the Congress initiated (and the BJP supported). But the question whether doles are more effective in helping the poor needs to be examined. This question came up last year when poverty figures released by the Planning Commission showed a sharp decline in poverty levels between 2009-10 and 2011-12 and also a decline in the absolute number of poor. The Congress party was quick to claim credit – not for the years of highest ever economic growth during UPA 1 (which they otherwise kept boasting about), but for welfare measures during its rule, especially the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). 
But economist Surjit Bhalla questioned this claim in this article. Using NSSO data, he pointed out that MGNREGA accounted for only 1 percentage point of the 13.1 percentage points decline in poverty between 2009-10 and 2011-12. In this second article, he gives a more direct link between growth and poverty reduction.
Now to the wrong impression about pro-market policies.
Venu’s article argues that Modi’s statements that government coffers are meant for the poor is `very socialist in its tenor and intent’. This reinforces the completely fallacious image of pro-markets ideologues as unfeeling cads who want the government to work for the well-off and the rich. Not even free market fundamentalists (except those in the loony fringe) argue against measures to help the poor. There will, they admit, always be disadvantaged people who will need the helping hand of the state. The point of divergence between socialist policies and pro-market policies is not about helping the poor; it is about how to help them.
The socialist approach is through price-distorting doles and welfare programmes (no matter how leaky and inefficient they are). The pro-markets approach is to get the state to stop meddling in, and micro-management of, the markets and to concentrate on providing public goods, thus ensuring high growth which will bring more people above the poverty line (no matter how high or low it is set).
Venu cites two new schemes in Jaitley’s budget - Deendayal Upadhyay Gram Jyoti Yojana and  Shyama Prasad Mukherjee Rurban Mission – as examples of BJP social sector schemes and calls this BJP’s own brand of socialism. But these are not welfarist schemes; these are schemes to provide physical infrastructure - clearly the role of the state even in a market economy – that will spur economic activity and growth. Socialist policies do not bring high growth; pro-market policies do. We have seen that in India.
High growth will not only help address the problem of poverty, it will, far more importantly, provide the resources for targeted interventions to help the poor and the needy. If there is no money in government coffers, even socialist states cannot help the poor. Such interventions should ideally be through income support and cash handout measures than inefficient welfare programmes that are liable to corruption and cornering by the better off, leaving the poor where they are. Even Amartya Sen has not argued against excessive state intervention in the markets; he too believes growth is necessary for poverty reduction. It is another matter that he prefers inefficient welfarism over more efficient income support measures.
The problem with the discourse on political economy in India is that words like socialism, pro-poor and market friendly are bandied about, especially by politicians, without adequate understanding of what they mean. Jaitley’s statements prove this.

Two Roads For The Country

What if India had followed Masani's and Rajaji's vision rather than Nehru's?

http://timesofindia.indiatimes.com/home/opinion/edit-page/What-if-India-had-followed-Masanis-and-Rajajis-vision-rather-than-Nehrus/articleshow/20279198.cms

Today is the death anniversary of two noteworthy Indians. They started off as ideological comrades but later became antagonists, each representing two opposing economic worldviews.
Their anniversaries too will be observed in contrasting ways - one with pomp and publicity, the other in obscurity. There's a certain irony in that.
Jawaharlal Nehru will be feted at various functions and the United Progressive Alliance (UPA) government will pledge itself to his ideals, never mind that the country has turned its back on his eponymous model of development, which was heavily biased towards state intervention in the economy. This shift away from socialism — half-hearted though it is — would not have pleased Nehru had he been alive, even though his name has been constantly invoked by the Congress to show continuity with his policies.
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.
Nehru and Masani forged a deep friendship when they were both in the Congress, strengthened by their common love for socialism and admiration for the Soviet Union. Masani was one of the founders of the Congress Socialist Party within the Indian National Congress, in the early 1930s. Soon, disillusioned by Stalinist excesses in the Soviet Union, he became one of India's foremost and forceful critics of communism.
In 1947, he articulated the idea of a mixed economy, with three sectors - a small sector of nationalised industries (which would be decided by an independent commission), a larger sector of new public enterprises in areas where what he called 'free enterprise' was unable to venture into, and a third, largest sector of free enterprises. "Such a programme of state plus free enterprise is, in fact, the only practicable programme that the government in India can possibly adopt in the coming years...it is important that it is done, not sullenly for lack of anything better, but with enthusiasm and drive," he wrote in a paper detailing the idea.
After Independence, his nuanced approach would bring him in direct conflict with Nehru and what he called the latter's zeal to foist the Soviet pattern of state capitalism. Since the only non-socialist alternative to the Congress in the 1950s was the Jan Sangh, with a strong Hindu bias, Masani teamed up with Rajaji and farmers' leader, NG Ranga, to form India's first conservative-liberal Swatantra Party in 1959. Through the party's short life and after its demise, Masani never tired of pointing out that state involvement in industry, trade and commerce would result in the neglect of its primary responsibilities of maintaining law and order and the provision of drinking water facilities, primary healthcare, primary education and physical infrastructure.
He also relentlessly pointed to the lurking dangers of the licence-permit-quota raj that Nehru and later Indira Gandhi promoted. Nehru apologists argue that his model was vilified because of the distortions that his daughter introduced in the 1970s. But Masani and Rajaji always warned that the model was susceptible to such distortion.
So when, in 1991, India took its first steps towards a freer economy, Masani should have felt vindicated. Though he was glad, he also had a sense of foreboding. The government, he noted, took the path of liberalisation out of compulsion and not conviction and he fretted that this would not be sustained. He was clearly quite prescient.
State meddling in the economy continues; in the name of helping the poor, the government continues to artificially suppress prices and distort markets rather than working seriously for a shift towards targeted subsidies; inefficient public sector undertakings continue to be cosseted; inspector raj continues to throttle small and medium enterprises. Despite what the critics of liberalisation might say, India is not a market economy in the true sense of the word.
While Masani, were he alive, would have been pained by this, what would have horrified him is the prevailing rampant corruption - the result of a pernicious cronyism that marks the relationship between government and private business. What would devastate him is that this is happening in the name of liberalisation.
Crony capitalism is not the post-1991 phenomenon that those railing against what they dub 'neo-liberal economic policies' make it out to be. Though a strong supporter of private capital, Masani took a dim view of most Indian entrepreneurs of his time who, he believed, took the easy way out by bribing ministers and bureaucrats instead of facing up to competition. Naturally, he blamed the controls-driven system for fostering this. Masani would have been the first to speak up against the shenanigans in the telecom, coal and airlines sectors.
As economic liberalisation increasingly comes under attack for fostering oligopolies and sowing the seeds of plutocracy, there are not enough voices pointing out that the mess the country is in is a direct result of the state continuing to have the power to make or mar fortunes of entrepreneurs, that the country needs more economic and governance reforms to strike at the root of corruption. Masani would have been that voice.
Minoo Masani, the country misses you.
The writer is a senior journalist and author.