The economic growth rate of the country was around three to four per cent in the seventies and eighties. Business activity was slow because of many government regulations. License was required to put up most industries. Only Ambassador and Fiat cars were manufactured in the country. Other businessmen like the Tatas were not given a license to manufacture passenger cars. Result was that consumers had to buy inferior cars. Consumers had to pay black money to buy even this inferior car in the market. Same situation prevailed in respect of two-wheelers. Bajaj scooters were sold at a premium. The interference of government in business was all-pervasive. The Controller of Capital Issues determined the premium at which companies would be allowed to issue rights shares. The Post and Telegraph Department had monopoly over telephone services. Consumers had to wait for five to ten years to obtain a new connection. Officials of the P&T Department collected huge bribes for illegal transfers and for giving out-of-queue connections. The economy had slowed down, in part, because of many such restrictions.
Great leaders like Nehru and Indira were ardent followers of socialist thought. They saw the businessman as ‘bad’ and the government as ‘good’. Nehru and Indira were perhaps influenced by the Soviet experiment in Russia and genuinely thought that handing over the reins of the economy to the public sector would liberate the country from economic backwardness. They honestly believed the businessman was a crook. But their policy, howsoever well-intentioned it may have been, led to opposite results. The state machinery-officials and ministers-used these regulations to collect bribes and enrich themselves instead of using it to secure people’s welfare.
Dr Manmohan Singh thankfully put an end to this disastrous policy. Beginning economic reforms in 1991, he advocated that the businessman was not a thief. Perhaps he was more influenced by the Japan-United States model where businesses and government worked closely. He believed competition among businessmen makes them produce good quality goods at a low price and helps secure the consumer’s welfare. Thus, he tried to liberate the businesses from government control. Licensing was drastically reduced, office of Controller of Capital Issues was abolished. Telecom, banking and insurance sectors were opened to private participation. Indeed, this led to availability of cheap goods like cars, televisions and even cloths. Belief was that this would spontaneously lead to public good.
This veneration of free markets was first propounded by famous economist Adam Smith about 200 years ago. He said that competition in a free market establishes public good as if an invisible hand was guiding the businessmen. There was no need to separately worry about public good. His logic was like this. Competition in the market pushes the businesses to produce goods at a lowest cost. This leads to cheap goods being made available to the people. For example, I had brought an electronic calculator from United States for my father in 1973 for 100 dollars or about Rs 1,000 at that time. Today, a much better calculator is available for Rs 50 because of the improvements brought about by competition. The slum-dwellers today have the pleasure of watching the TV and drinking cold water from the refrigerator because of the steep reduction in the price of these goods. Thus Adam Smith suggested that the government must not interfere in the market.
Dr Manmohan Singh basically followed Smith’s principle. He gave free run to the businessman. They are allowed to sell foreign liquor, display scantily-clad cheerleaders during for-profit cricket matches, sell harmful synthetic cloths and make five-star hotels and stage cabarets. The market decides whether the child will eat gutka or drink milk. The labour market has also been deregulated. Competition among workers is leading to low wages. There is virtually no increase in workers’ remuneration after accounting for increase in inflation. The result is not socially good. On the one hand, businesses are making huge profits. On the other hand, workers’ earnings are stagnant. The common man has indeed got a cheap television and a refrigerator but he is incensed with huge profits made and flamboyant display of wealth being made by businessmen, bureaucrats and ministers alike.
We are caught between the devil and the deep sea. The state-centered Nehru-Indira model leads to slow economy, huge earnings for the government machinery, while businessmen and the common man remain on the receiving end. The Manmohan Singh model, on the other hand, provides huge earnings for the government machinery and businessmen, while the common man still continues to remain on the receiving end.
I believe Dr Manmohan Singh wrongly understood the principle of free market propounded by Adam Smith. The debate in the nineteenth century at the time of Adam Smith was between the feudal and capitalist modes of production. Most of Europe was ruled by feudal lords. Production was undertaken under protected barriers of the feudal estates. This led to much inefficiency. A feudal lord could have grains ground at three times the cost than the market because his economy was protected from competition. Adam Smith rightly said that such method of production was inefficient. This did not mean, however, that there should be no control of the government on the market. Adam Smith advocated free markets only for such items that were deemed to be ‘good’ by the government. If cloth, had to be produced, then it was better to have this done by competition in the free market rather than under protected environs of the feudal estates. Smith did not say that the market should be allowed to make harmful synthetic cloths, cigarettes and liquor. Just as the teacher encourages students to compete in the game of football but does not allow them to compete in fighting with knives and swords, similarly the production of only good things should be left to competition in the market.
I believe there is no alternative to government regulation. The problem during the Nehru-Indira days was not regulation but bad regulation. Government reduced competition through regulation instead of promoting it. Dr Manmohan Singh has done no better. He has adopted the policy of no regulation instead of good regulation and again provided free run to monopoly businesses. Surely, the common man has got the television but his wages are low and he is troubled by the naked display of wealth.
Our ancestors had given the formula: “Dharma, artha, kama”. Business should be done in a way that leads to social good. The Kshatriya had the responsibility to guide the Vaishya in the right direction. Thus, Dr Manmohan Singh should make strict rules about what the business will do and what it will not do. Competition must prevail only in the “allowed” area just as the athletes race within their lines. The solution to bad regulation of the Nehru-Indira period is good regulation, not non-regulation of Dr Manmohan Singh.
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