Understanding the Punjabi Farmers' Agitation

 

Do rich countries undermine democracies in developing countries? Economic History in Small Doses 3

Girish Menon*

The IMF led consortia (World Bank, WTO…), have represented the interests of the rich countries. Historically, they have advocated free market policies in developing countries. Whenever such weak economies got into economic trouble the consortia have insisted on harsh policy changes in return for their help. By such acts, are the rich countries really helping the growth of democracy in developing countries?

---Also read

1. Ideological Positions and Economic History

2. Is Corruption An Obstacle to Economic Growth? - Economic History in Small Doses 1

3. Are Democracy and Capitalism in Conflict? Economic History in Small Doses 2

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Free market policies have brought more areas of our life under the ‘one rupee one vote’ rule of the market. Let us examine some of these policies:

The argument is framed thus, “politics opens the door for perversion of market rationality; inefficient firms or farmers by lobbying their politicians for subsidies will impose costs on the rest of society that has to buy expensive domestic products.” The current farmers’ agitation in India is being tarried with this brush.

The free marketer’s solution is to ‘depoliticize’ the economy. They argue that the very scope of government activity should be reduced to a minimal state through privatisation and liberalisation. This is necessary, they argue, because the politicians are less competent and more corrupt. Hence, it is important for developing countries to sign up to international agreements like the WTO, bilateral/free trade agreements like RCEP or TPP so that domestic politicians lose their ability to take democratic decisions.

The main problem with this argument for depoliticization is the assumption that we definitely know the limits where politics should end and where economics should begin. This is a fundamental fallacy.

Markets are political constructs; the recognition of private ownership of property and other rights that underpin them have political origins. This becomes evident when viewed historically. For example: certain tribes have lived in the woods for centuries until the point when this land is sold off by the government to a private landowner and then these tribespeople now become trespassers on the same land. Or the re-designation of slaves from capital to labour was also a political act. In other words the political origins of economic rights can be seen in the fact that many of these rights that seem natural today were once hotly contested in the past.

Thus when free marketers propose de-politicizing the economy they argue that everybody else accept their demarcation between economics and politics. I agree with Ha Joon Chang when he argues that ‘depoliticization of policy decisions in a democratic polity means – let’s not mince our words – weakening democracy.’

In other words, democracy is acceptable to free-marketers only if it does not contradict their free market doctrine. They want democracy only if it is largely powerless. Deep down they believe that giving political power to those who do not have a stake in the free market system will result in an ‘irrational’ modification of property and other economic rights. And the free-marketers spread their gospel by subtly discrediting democratic politics without openly criticising democracy.

The consequences have been damaging in developing countries, where the free-marketers have been able to push through anti-democratic actions well beyond what would be acceptable in rich countries.

* Adapted and simplified by the author from Ha Joon Chang's Bad Samaritans - The Guilty Secrets of Rich Nations & The Threat to Global Prosperity

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 Conor Neil

Are Democracy and Capitalism in Conflict? Economic History in Small Doses 2

By Girish Menon*

The answer is yes. Unlike what a lot of people believe capitalism and democracy clash at a fundamental level.

 Democracy runs on the principle of ‘one person one vote’. The market (a euphemism for capitalism) runs on the principle of one rupee one vote. Naturally, the former gives equal weight to each person regardless of the money s/he has. The latter gives greater weight to richer people. Therefore, democratic decisions usually subvert the logic of markets.

 Most 19^th century liberals opposed democracy because they thought it was not compatible with a free market. They argued that democracy would allow the poor majority to introduce policies that would exploit the rich minority, thus destroying the incentive for wealth creation.

 Influenced by such thinking, all of today’s rich democracies, historically, gave voting rights only to those who owned more than a certain amount of property or earned enough income to pay more than a certain amount of tax. The election result in British India, often quoted to justify the traumatic partition, was based on votes by a subsection of the population.

Communists, who reject the ‘one dollar one vote’, were not known for their conduct of free and fair elections either.

 On the other hand, money can be a great leveller. It can work as a powerful solvent of undesirable prejudices against people of particular races, social castes or occupational groups. The fact that the openly racist apartheid regime in South Africa gave the Japanese ‘honorary white’ status is a powerful testimony to the liberating power of the market.

 Unfortunately, leaving everything to the market will result in the rich being able to realize the most frivolous element of their desires, while the poor may not even be able to survive.

 Moreover, there are certain things that should simply not be bought and sold – even for the sake of having healthy markets. Judicial decisions, public offices, academic degrees are a few such examples.

 Democracy and markets clash at a fundamental level.  They need to be balanced. Free markets are not good at promoting economic development despite what their proponents argue.

* Adapted and simplified by the author from Ha Joon Chang's Bad Samaritans - The Guilty Secrets of Rich Nations & The Threat to Global Prosperity

Is Corruption An Obstacle to Economic Growth? - Economic History in Small Doses 1

 By Girish Menon* 

Corruption is indeed a big problem in developing countries. In fact, the consensus among the IMF led consortia is that corruption is the biggest obstacle to economic growth and development. This has led them to conclude that there is no point in giving aid to developing countries because this money will not reach the intended beneficiaries. Such reasoning has led to serious cuts in the aid programmes of the developed countries. However, is corruption an impediment to economic growth?

Corruption is a violation of the trust vested by its stakeholders in the holders of office in any organisation be it a government, a corporation, a trade union or even an NGO.

 Life would be simpler if corruption produced unambiguously negative economic consequences. But the reality is a lot messier.  In the last half century countries like Zaire under Mobutu, Haiti under Duvalier have had their economies wrecked by corruption. At the other extreme, countries like Finland, Sweden and Singapore have done well in a non corrupt environment. At the same time there are countries like China, Japan, Taiwan, Korea and to some extent India who were corrupt but have done well economically. How is it possible that corruption has such different economic consequences in different economies?

A bribe is a transfer of wealth from one person to another. It does not necessarily have negative effects on economic efficiency and growth. If the bribe-taker is investing that money in another domestic project that is as productive as the bribe-giver would have invested in, then the venality may have no effect on the economy in terms of efficiency or growth. The critical question then is what happens with the bribe money? If the recipient indulges in conspicuous consumption or moves it to a tax haven then the economic effects may be worse.

Corruption may also distort government regulation. If a pharmaceutical company supplying sub-standard drugs can continue its practice by bribing the relevant officials, there will be negative economic consequences. However, if the regulation was an ‘unnecessary’ one then corruption may actually increase economic efficiency. For example if all the paper work to start a business takes a year (say) and paying a bribe gets the entrepreneur the green light in a month, then isn’t corruption adding to economic efficiency?

So the consequences of corruption depend on which decisions the corrupt act affects, how the bribes are used by recipients and what would have been done with the money had there been no corruption. In India, it is rumoured that some of the bribe money makes its way back into the constituency of politicians, after a round trip to tax havens. And that is not necessarily a bad thing!

* Adapted and simplified by the author from Ha Joon Chang's Bad Samaritans - The Guilty Secrets of Rich Nations & The Threat to Global Prosperity