Welfare economy and Growth rates

While introducing a historic bill that will guarantee 100 days of employment each year to every rural household in India, where more than 70% live in villages, Sonia Gandhi has given the most laudable quote of the year:

“I believe an economy which is growing at 7% per year, can and should find the resources for such a crucial intervention.”

The ambitious National Rural Employment Guarantee Bill was clearly one of the reasons why the Left parties were claimed to be active in India’s central politics of the day. Sonia and the Left have been lending each other support, but what will be interesting to watch out now is the stake of Manmohan Singh. Is he really in favor of a bill that the critics predict will draw on India’s potential as a world economic player?

India, since the 1950’s has been largely a self-proclaimed welfare state, rationalizing items of mass consumption to cater to the poor. In the process of course, it had been left behind by the capitalist competitors, until the present PM in his stint as the finance minister 15 years back relaxed the economic sectors for class consumption (because he thought India needed to compete with the group of seven looter countries). And amid competition among the giants private sectors, the rural employment schemes (such as Rajiv Rojgar Yojana) and small scale industry initiatives had fallen apart.

In his new avatar as the prime minister, Singh has been vocal about his intent to further worthy lessons of Thatcherism, much to the chagrin of the Left. Now that the Left parties’ demands are about to bear some fruits, it will be worthwhile to watch which fine line will Singh walk (as such he has been severally accused of being remotely controlled by Sonia Gandhi). Will he show his real face this time? Or just stand humbled at the showers of praises?

On a philosophical ground, the Indian initiatives seem contradictory. Allowing industrial workers to be harassed by multinationals on one hand, and promising employments to all poor (in the classic “Garibi Hatao” manner) are not the hallmark of able planning. Call it a premature prediction, but a happy marriage between capitalism and welfare state is just unlikely. For a temporary period, the governments can fool some people for a time being into believing that a free market state can secure the future of the unemployed poor, but it will be a cruel joke all the same.

Intentions of Sonia Gandhi may be above board, and she could be right about the utility of growth rates. But to assume that dividends of the growth rates can be applied to country’s upliftment is a dependability that’s utterly short-term. For example, with welfare schemes, the first casualty is the growth rate itself.

The way to further economic growth has nothing to do with welfare. Indeed, the economic growth in a free market economy happens only with curtailing infrastructure for the poor. A cursory look at China and India in the past decade will vouch for the fact that as the growth rates have taken place, the poorest sectors of population have most adversely been affected. The fastest growing economies of Asia also are seats to the most widening wealth gaps.

The way to further welfare has something to do with economic growth instead. In other words, the goal should be not to improve (or depend on) the growth rate. The goal should be to better the welfare schemes, so that it will gradually (and not suddenly—lets say because of the way IT sectors in India has helped growth of Indian companies flourish which we mistake for a national economic growth) improve the overall economic conditions of the worst affected poor.

When Mahatma Gandhi in his talisman had indicated that we ought to look at the poorest of the poor before taking a step, he knew his words well. For example, IT sector growth helps the middle class become rich, the rich to emerge richer, but it clearly leaves out the poorest of the poor in even worse situation. Although IT investments suddenly help economic growth of the country (per capita increases x fold—per capita is just an average anyway, not an actual reflection of individual incomes), it does not include the state of the 70% of population. The 70% of population reel under even more scarcity since their representatives instead of coming onto the villages to discuss water scarcity issues, then start using video conferencing to talk to district magistrates who do not come out of their little chambers of wires either, in the name of a myopic e-governance. Who gets most affected, and in which way?

The way about it is to look at welfare first, and then the growth. This can be attained by proper planning. As of now, India has pathetic five year plans ( I doubt if we still have any, these days) –economic, and educational. The planning must include the rural areas first (since most people –72 crores in India–live in villages today and most people who are needy live in most rural areas too, although this does not exclude the urban poor—who are growing in number thanks to unplanned urbanization).

The pro-poor planning is the step to viable pro-people economic growth. Pro-sector economic growth is not a step to better peoples’ lives. It only helps a dozen more business geeks to become millionaires (those who eat away the portion of wealth that should have been equitably distributed among the more needy). Planned urbanization, and focus on agrarian rural economy does not exclude information technology –it merely lets people handle the benefits via use of kiosks and self-made computer hardware—much as the spinning machines or mango orchards, instead of letting some private company like Wipro make huge profit margins by selling products at abominably high rates.

If I dare rephrase Sonia Gandhi, the more effective (although less laudable) quote could have been:

“We believe that consistent pro-poor schemes aimed at 70% of people in our country of abundant natural and human wealth can easily maintain an economy to grow at 7% per year and more.”


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