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If you were born in India in the 1950s through the 70s, you grew up believing India invented the “mixed economy.” We were fed golden tales about how the commanding heights of our industry were not mortgaged to any seth ji (capitalist) but to a cuddly and “altruistic” state. It’s only when our economy blew up in the early 90s that we realised how hopelessly “mixed up” we were!
But unknown to most of us, the principles of a “mixed economy” had taken shape in the United Kingdom in the 1930s/40s, within the thinking echelons of the British Labour Party.
The philosophy took strong roots in Europe in the post-war years, but was largely defined as a “form of capitalism where most industries are privately owned with only a minority of public utilities and essential services under public ownership… governments provide environmental protection, maintenance of employment standards, a standardised welfare state, and maintenance of competition.”
But in India, government dominance and ownership became the hallmark of what we called a “mixed economy.” It descended into a wealth-destroying form of state capitalism where the government assumed monopolistic control of operations ranging from transportation, banking, telecoms, hospitality, steel, coal, armaments, healthcare, universities, and what not.
Most discordantly, agriculture, our biggest employer, remained totally in private hands, unreformed and chained to medievalism, outside the pale of even the “mixed up” economy.
The most renowned economists have described this policy muddle as the primary villain that produced “both the slow growth of socialism and the inequalities of capitalism.” In short, the worst of both worlds; no wonder our 1991 bankruptcy was foretold and inevitable.
Unfortunately, we wasted the crisis of 1991 by not ripping up the mixed economy and nixing its contradictions. Instead, we chose the path of “liberalisation,” which essentially opened up trade, industry and investment to the world. While it was a productive deconstruction, and undoubtedly successful in unleashing growth impulses, it wasn’t quite the revolutionary change it was made out to be.
It did propel India onto a much higher plane, but we are now plateauing at 7-8 percent, unable to clear the 10 percent threshold that pulled China out of grinding poverty (that China had once shared with us).
I hope the next government decisively sheds the incrementalism of the past seven decades and creates an economic model that is neither Left nor Right, neither capitalist nor socialist nor mixed, but one that is uniquely suited to our current station; which grapples with and overcomes today’s political constraints and realities; one that is not half-way or half-hearted, but courageously goes through and UN-MIXES our economy. Yes, UN-MIXES it!
To begin with, we must stop hero worshipping 1991’s “revolutionary reforms.” I readily concede these trade, industry and investment policy changes were hugely positive (even radical) in unshackling us from the command and control apparatus of the 1970s. But the gear only shifted from 1st to 2nd, while the chasis of India’s economic motor remained split, mixed and wobbly between private industry and a domineering government.
So when we preen about the “dramatic transformation unleashed by the revolutionary economic reforms of 1991,” I find it difficult to suppress a sardonic grin. Look where we have reached:
I can go on and on with this litany, but that would be as wasteful as the mess created by our mixed economy. To reiterate, the time has come to UN-MIX it.
No, it’s not a typo. Usually, all free-market prescriptions begin with “roll back the state, free up entrepreneurial energy”. Instead, I am asking for “more government”, but in only five areas:
That’s it. Once our state has become much bigger and invested all its energy and resources in these five areas, it should shrink completely from all areas of private economic activity, where markets can work and be regulated efficiently. Just don’t be half-hearted about this pull out.
That then is the mantra of an UN-MIXED economy: More government, total entrepreneurship.
India’s economic salvation shall lie in such a separation of the state and entrepreneur. Else, we shall muddle along and stay hopelessly moored to middling outcomes.
(We Indians have much to talk about these days. But what would you tell India if you had the chance? Pick up the phone and write or record your Letter To India. Don’t be silent, tell her how you feel. Mail us your letter at lettertoindia@thequint.com. We’ll make sure India gets your message)
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Published: 17 Jan 2018,03:40 PM IST