India Needs a New Economics

Indian economists have always been tempted to enter the fray and come up with their own answers to these questions. But their answers lack originality because they end up taking one or the other side of the already established bipolar intellectual space consisting of two isms: capitalism and socialism. Of course, this side-taking, this lack of originality, is not a problem in itself. Every problem in the world doesn’t require original thinking. However, our economists take sides without understanding the fundamental assumption on whose basis the bipolar economic intellectual space has come to be in the first place: the assumption of a particular kind of state.

Pick up any book on economics, and you’ll find the word state mentioned in it at least once. In fact, from Adam Smith to Karl Marx, from Freidrich August von Hayek to John Maynard Keynes, the most important question economists have been trying to answer is that of the correct level of state interference in economic activities. Should markets be completely free, or should they have state control? What should be the extent of this control?

Indian economists have always been tempted to enter the fray and come up with their own answers to these questions. But their answers lack originality because they end up taking one or the other side of the already established bipolar intellectual space consisting of two isms: capitalism and socialism. Of course, this side-taking, this lack of originality, is not a problem in itself. Every problem in the world doesn’t require original thinking. However, our economists take sides without understanding the fundamental assumption on whose basis the bipolar economic intellectual space has come to be in the first place: the assumption of a particular kind of state. Thus, without caring for whether western economists like the ones mentioned above refer to the same kind of state when seeking the correct level of its interference in markets, Indian economists turn knobs in the hope that they can come up with the correct level of state intervention for India. This is a huge problem.

I have not come across a definition from any western economist of the kind of state he or she refers to. I don’t mean to include in this definition qualities they’d like to see in the state (of which they have of course written a lot), but qualities they ignored, considered inevitable, or regarded as ideologically neutral—in short, qualities they took for granted. Since one does not list down things one takes for granted, it is understandable that western economists haven’t considered it important to clarify their definition of state for people like me. Indian economists, who have failed to set up an Indian school of economics in the real sense of the term, are in a worse position. Since their western gurus didn’t tell them, they don’t even subconsciously know what kind of state is taken for granted in their economics bibles. While western economists didn’t find it worth highlighting, Indian economists don’t even know about it, and therefore, cannot highlight it.

The best way to get out of this situation is to start from a clean slate. Western economics and its bipolar world of capitalism and socialism must be consulted if and only if, and as and when, the need arises. One thing that will stand out in this approach is that it cannot take the Indian state as it exists today for granted. This is because it is a new kid on the block, and a democracy too. Kids grow and democracies change. Indian economists who want to start anew, therefore, don’t have the luxury of taking the Indian state for granted even subconsciously. It must not only be consciously understood but also reformed if need be.

At this point, it would be unjust of me if I should refrain from writing down what, in my view, was the kind of state that western economists took for granted. Western economists were dealing with European states such as England, France and Germany, all of which had a few important features which didn’t warrant mention because of their obviousness. First, they were all culturally and linguistically as homogenous as could have been imagined. Second, they were or had been monarchies with rather stable geographical boundaries for ages. Third, the people of those states had a clear sense of who constitutes ‘us’ and who constitutes ‘them’. Fourth, those states comprised of only one level of government—‘the’ government—which meant low power-distance. Fifth, the government was comprised of people who the public could call ‘us’ from a cultural or linguistic perspective; it was not—at least predominantly not—made up of ‘others’.

Let me end this article by contrasting the above with the Indian state, hoping it provides sufficient motivation for a new Indian economics. First, the Indian state is nowhere close to being culturally and linguistically homogeneous. Second, the Indian state with its current boundaries has never been the territory ruled in its entirety by any native monarch; there have always been multiple monarchies with relatively unstable geographic boundaries within India. Third, the people of the Indian state have never in history had a sense of Indianness; Indianness has never been and is not a proper identity. Therefore, despite recent assertions that it must change, ‘us’ and ‘them’ have been and continue to be words Indians use to describe themselves as much as they use it to describe non-Indians. Fourth, the Indian state has two important levels of government, central and state, with the former farther away from the people than the latter but possessing greater power. Fifth, the central government, which holds sovereign power and can define and redefine state boundaries, is predominantly made up of ‘others’ for most Indian cultural and linguistic peoples.

It is my contention that these differences are impossible to reconcile with the existing obsequious Indian economics. What we need is a completely new Indian economics—if we want to keep India one, that is. If the current economics continues, even without the knowledge of Indian economists, the entire political economy appears to be all set to move towards disintegration, simply because that is the underlying scenario in Europe. After all, nearly every feature of the state that western economists took for granted applies not to India as a whole but to the Indian ‘states’ which were carved out after the British left.

What Would Adam Smith Think of Our Budget?

“The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with most unnecessary attention but assume an authority which could safely be trusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of man who have folly and presumption enough to fancy himself fit to exercise it.”

With the Union Budget round the corner, it’s time to recollect what Adam Smith would have thought of people presenting budgets. He writes in The Wealth of Nations:

The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with most unnecessary attention but assume an authority which could safely be trusted to no council and senate whatever, and which would nowhere be so dangerous as in the hands of man who have folly and presumption enough to fancy himself fit to exercise it.”

That is, Mr. Jaitley:

  1. Is all set to get unnecessary attention,
  2. Has assumed an authority which can’t be safely trusted to any organization (council or senate), and
  3. Is doing something most dangerous since he thinks his government is fit to exercise that authority.

Smith was talking about a country like England, with only one government followed by local bodies. In a country like India, with a Central Government that has its hold over more than two dozen culturally and linguistically diverse states, Smith’s words above are all the more applicable.

(Image courtesy: volterra.co.uk)