*Building pyramids or cathedrals or other such architectural excesses may engender an illusion of investment in physical capital, but they do nothing to elevate the quality of life

* There is a sufficiently large body of evidence to establish that no single factor has contributed more profoundly to lifting up entire populations out of poverty than the unleashing of economic freedoms

During a visit to China in the late 1970s, when that country was still to open its economy to the world, a Western free-market economist of some distinction commented trenchantly on the tendency among visitors to gush glowingly about the absence of flies in China, when in fact they ought to have been fretting about the absence of freedoms.

India, by contrast, has an excess of both flies and freedoms relative to China. Yet, it’s fair to say that when it comes to the critical determinants of economic freedom, India’s growth trajectory since Independence has for the most part paled in comparison with China’s. Neither of these two human-resource-rich countries has, of course, been faithful to the true spirit of free-market enterprise, but were that self-same economist to travel in China and India today, there is no doubt which of the two he would have seen as reflective of the openness to the world that he commended.

One particular entrepreneurial anecdote, from the early ’80s, when India was still wrapped up in the red tape of the licence-permit raj, illustrates the downside of the absence of economic freedom more starkly than business school wisdom can. It’s a story that former Procter & Gamble (P&G) India CEO Gurcharan Das often invokes as a cautionary tale to account for why India has not quite realised its potential.

The story goes that one winter, when a flu wave was sweeping across parts of India, Richardson Hindustan (as P&G was then known) notched up spectacular sales of Vicks VapoRub, the ointment that provides relief from cold and cough. And yet, Das remembers, the stellar corporate performance only induced anxiety in him — because in ramping up production, the company had exceeded its government-approved manufacturing capacity, and he was potentially liable for prosecution for the breach. Such were the constraints on entrepreneurial freedom that the killjoy bureaucratic babus exercised back then in the shadow of a socialist economy.

It’s not as if policymakers were unaware of alternative economic formulations to the planned model they had embraced. Even as far back as in 1955, when India was drawing up the Second Five Year Plan, it had reached out to advocates of free-market principles — Neil Jacoby and Milton Friedman — for counsel. But, as Friedman recalled in his commentary on the Indian experience, the dreary desert sands of dead bureaucratic habit would not permit the clear stream of reason to flow through them.

There is, Friedman observed, a “deadening uniformity of opinion” in India, particularly among economists, about issues of economic policy. In interactions with policymakers and with teachers of the dismal science, he encountered the “same stereotyped responses”, often in the same words — as if, he said, “they were repeating a catechism, learned by rote, and believed in as a matter of faith”. So abiding was their faith in the socialist gods that they clung to their beliefs even when they were patently contradicted by the marshalling of empirical evidence.

That such beliefs pervaded the economic policymaking process back in the ’50s isn’t much of a surprise; after all, the world was a vastly different place, and a newly--independent India was led then by a charismatic prime minister who curiously believed that ‘profit’ was a “dirty word”. The bigger wonder, however, is that for the most part, these disproven derivations still enjoy resonance in the corridors of power to this day.

There is a sufficiently large body of evidence, across political systems and geographies, to establish that no single factor has contributed more profoundly to lifting up entire populations out of poverty than the unleashing of economic freedoms. Even in India, where political constituencies across the spectrum have exhibited a marked reluctance to abide by liberal economic principles, there is compelling affirmation of the fact that the economic well-being of the largest number of people was achieved only during periods of high growth.

If there is one lesson that history has reinforced, it is that building pyramids or cathedrals or other such architectural excesses may engender an illusion of investment in physical capital, but they do nothing to elevate the quality of life of a majority of the people. That governments to this day persist with such monumental folly is doubly striking.

Faith, as we have seen, is a stubborn thing, which does not readily yield to the persuasive power of evidentiary value that establishes contrary facts. For now, therefore, those catechisms that policymakers had learned by rote still hold sway over their actions.

But every crisis comes embedded with the seeds of opportunity. Given that a pandemic has dragged down the world’s economy to ruinous depths not seen since the Great Depression of the ’30s, the upside for bold reforms would intuitively seem bright. In India, too, only in times of crises have governments even fleetingly undertaken broad-sweep transformative action. In that sense, the enormity of the crisis at hand suggests that the planetary alignment is arguably the most propitious for the unshackling of the entrepreneurial spirit. India’s experience of the past epitomises the sentiment that people and nations act wisely when they have exhausted all the other possibilities. That, too, is a form of faith; and like the abundance of flies (and freedoms) in India, it too is available aplenty.

BLINKVENKY
 

Venky Vembu is Associate Editor, BusinessLine;

Email: venky.vembu@thehindu.co.in