Balbir Talwar writes to the greatest Libertarian of the century
Balbir browsed in the internet and downloaded a report which Dr Friedman had submitted to the Government of India (ruled by Pt Nehruís socialistic doctrine) in 1955. He then exchanged e-mails with Dr Friedmen, which are reproduced below:
Date: Mon, 19 Nov 2001 08:46:25 +0000 (GMT)
From: "balvir talwar" <bvtalwar AT yahoo.co.uk>
Subject: Message for Dr Milton Friedman from an Indian entrepreneur
To: keli AT friedmanfoundation.org
Attn: Ms Keli Whitesell
Here below is a message for Dr Milton Friedman, which I would like you to forward to him, as I do not have his personal e-mail address.
208 Okhla Industrial Estate
Ph: 91-11-6832037† : 91-11-51708580
e-mail:† <bvtalwar AT †ahoo.co.uk>
Dear Dr Milton Friedsman:
I am an Indian entrepreneur who has been your admirer †since I went to Carnegie Tech., Pittsburgh in 1945, got my Master's degree in Chemical Engineering, and returned to India in 1949 after working as a project engineer with Blaw Knox Construction Co., Pittsburgh. Presently I am an entrepreneur of 35 years standing, engaged in the manufacture and export of laour-intesive product - Handicrafts
In my collection of your writings, I have an article of yours,†† which appeared in Newsweek dated August 18, 1980 titled "A Simple Tax Reform", wherein you stated that "Efforts to minimize taxable income would become unprofitable if the top rate were 25 per cent". This article was an eye opener at that time, and still holds good for any society in the world.
What has prompted me to address this letter to you is an article which appeared in Times of India, New Delhi dated Nov 6, 2001 , titled "Paradise Lost - Milton Friedman's Wasted Warning", wherein the writer, Vikas Singh, referred to a paper written by you in 1955, and presented to the Government of India. I have since downloaded your above paper from the internet, and written a short note titled "Winning Lost Paradise - Milton Friedman's memo to GOI (1955) Re-visited", which I am taking the liberty of reproducing below for your kind attention. I am not an economist, and therefore you may find my views, which are based on the ground experience of an entrepreneur in the category of SME, rather naive. This sector, which you so rightly pointed out in your 1955 memo, was (and is still) being neglected by India, at the expense of heavy engineering with high capital and low labour input at the one extreme, and handicrafts with low capital and high labour input at the other extreme.
I shall highly appreciate if you would refer my note to some one in your Foundation, and see if I could get a candid opinion as to whether the view expressed therein have any merit or not.
Thanking you in anticipation and with kindest regards
Winning Lost Paradise
Milton Friedman's memo to GOI (1955) Re-visited
Shri Vikas Singh has done a yeoman job, when he highlighted the warning given by Milton Friedman (the Nobel Laureate) as far back as in 1955, in a lucid article on the editorial page of TOI of 6th November 2001, titled "Paradise Lost". He made a small chronological mistake when he started his piece by "Thirty Six wasted years......". He only missed the period by one decade, but then what difference does it make, when we have actually wasted all the 54 years, since the British left our country as rulers, and are still debating whether we should open the flood gates of employment by ushering in the second generation reforms in the field of labour laws, which have been categorically promised by our F.M. in the last budget, †and which our esteemed P.M. have publicly declared as being urgently needed in his statements at different fora, including the Indian Labour Congress.
Like Vikas Singh, the writer has also downloaded Friedman's Memo from the internet to find out how we can see that what he has recommended in his memo back in 1955, is still valid to this day. The writer,† not being an economist, naturally has tried to extract lessons from his memo from his point of view as an entrepreneur, engaged in an enterprise manufacturing and exporting a highly labour-intensive product. When Friedman says; "The chief problem in the Indian program that impresses one is the tendency to concentrate investment in heavy industry on one extreme and handicrafts at the other, at the expense of small and moderate size industry. This policy threatens an inefficient use of capital at the one extreme by combining it with too little labour and an inefficient use of labour at the other extreme by combining it with too little capital.", he has touched the very core of the economic problem of India.
India with a billion strong† population ,† naturally has to look for FDI to supplement its limited capital resources, and then invest it in ventures which generate maximum employment as well as production to meet the demand of the domestic as well as the export market. It has been so clearly pointed out by Friedman in his Memo to GOI (1955), that it is the proper mix of capital and labour, which can solve the economic problems of the country. But the ground reality is that the policy makers in India are inadvertently following the same policy against which Friedmen warns in his memo. Instead of using the availability of abundant skilled and unskilled workers, who are ideally suited for use in large size organised labour intensive industries like garment, handicrafts, leather and software, (which is only possible if rigid labour laws are amended suitably, to make it possible for creating t productive-oriented employment), we are still clinging on to the se rigid labour laws simply to ensure† the job security for the small percentage of labour in the organised sector.† †
Economic reforms were first introduced by the Congress Government in 1990, and since then the same have been given a big push by the NDA Government, when they announced in the last year's budget speech that Labour Laws are going to be liberalised and made flexible so as allow freedom to the industry to structure its labour force to meet its production demands,† either quantity wise or quality wise. But the political scenario as it is in our country, the very party which initiated these reforms in 1990, are today the staunchest opponents, and have decided to support the left parties and the trade unions, and oppose removal of rigidities in labour laws calling them anti labour. The fact, however, is that it is the rigidity of our labour laws, which makes it anti-labour and anti-employment.
Coming back to Friedman's thesis that the right mix of capital and labour would be the right policy for India to follow, let us examine as to what kind of strategy would be most desirable. The need of the hour is to identify fields in which India has the natural advantage on account of availability of raw materials, land, power and labour at internationally competitive cost† and† invest the capital judiciously in these fields. Notable of these labour-intensive sectors being handicrafts, garments, software and other service sector., which by the way are the same with the highest export potential. In view of the WTO regime in the world trade,†† developing countries including India are finding it extremely difficult to face the international competition thrust upon them by the developed countries through restrictions, which the developed countries themselves openly contravene. †It therefore becomes essential that the developing countries evolve economic and export policies, which enable their export industries to stand on their own without sops and incentives prohibited under WTO rules. †
The writer, based on his personal experience in the field of handicrafts,† can say with great confidence that handicrafts industry is natural choice for attracting large investments provided it can be established in large size viable units, using the modern machines and techniques to prepare the base materials for final hand crafting.††
Date: Mon, 3 Dec 2001 10:18:12 -0800
To: bvtalwar AT yahoo.co.uk
From: "Milton Friedman" <CENSORED>
Subject: Reply to Your Message
Dear Mr. Talwar:
I enjoyed your letter which you had forwarded to me from our foundation in Indianapolis.† That foundation is devoted strictly to promoting parental choice in schooling so there is no one there who speaks for me in any other area.
I sympathize with the general tone of your note but I have not been in India now for many years and cannot pretend to make a considered judgment on what is appropriate under current circumstances.† Certainly the general views I expressed in 1955 still seem to me correct and relevant.
You say, "The need of the hour is to identify fields in which India has the natural advantage."† There is no need to identify such fields; they will emerge on their own if they are allowed to.† What is necessary is to remove the obstacles that now prevent the emergence of such industries.† I gather from your note that one of those obstacles is regulations pertaining to labor, and certainly an essential condition for a free market to operate is that you have a flexible labor market in which wages and terms of employment can be whatever is mutually agreeable to employers and employees.† Insofar as your note is an argument in favor of such a free labor market, I certainly agree with it.
Clearly labor is the one resource that India is overflowing with, so it does make sense that labor-intensive handicrafts might very well be an industry that would thrive if competition were free and open in India, but that can only be decided by experience.
I suspect that today as when I wrote nearly fifty years ago the major need is to get the Indian government out of the business of trying to decide how resources should be used and which industries should be favored.
May I say how much satisfaction it gave me to have something which I wrote nearly fifty years ago still generating interesting letters to me such as yours.† My best wishes to you.
Senior Research Fellow
Stanford, CA 94305-6010 U.S.A.