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Re: Sanjeev's mail

On Thu, 28 May 1998, Ari Sitaramayya wrote:

> About the East asian countries that virtually eliminated poverty: The
> countries that practiced dictatorships (you call them socialist) are
> the poorer of the lot. 

Correct, partly. Please do let us not mix up the form of government
(dictatorship/ democracy) with the economic system. Dictatorships of
could and do lead to poverty in the long run perhaps, but we are talking
of the economic policies.

> The countries which practiced capitalism, their
> economies provide cheap labor for the US companies to produce goods
> outside the US. Their fate can be determined by the US congress with 
> a single vote anyday. 

Amazing fact. I did not know that these countries with capitalist
policies, which focused on trade, which kept the exchange rates very low
and competitive, and focused on their comparative advantage (which is in
labor) were designed by God to provide cheap labor for US companies. 

The truth is that sensible leadership in the East Asian Tigers showed the
way to success and almost complete elimination of poverty and bringing
down of fertility.

Our goals in India should be clear: design sensible policies which
eliminiate poverty, increase growth, and cut down population growth,

I would any day prefer my country not to be
> subordinated to the whims of a foreign nation's policies under the
> pretext of globalization. Indonesia must
> be one of those capitalist economies on your list. India is a heck of a
> lot better than Indonesia.

Indonesia started with a base much lower than India. In 1960, its dollar
income was estimated at $641 per person, while India's was $769 (Laspeyres
GDP, see Penn World Tables). But between 1965-90, Indonesia's growth rate
of income was 4.5% per annum, compared with India's of about 1.9% (World
Development Report, 1992), thus comfortably out-performing India by a big
margin. Today, its GDP per capita is estimated at nearly twice that of
India (World Development Report, 1992) in dollar terms and thrice that of
India in PPP terms in 1994 (Pop. Reference Bureau, World Population and
Environment charts).

I don't have poverty statistics on Indonesia right now with me (I think I
need to build a huge personal library of statistics if I am to continue
these debates!), but I have no doubt that its poverty has come down

And we are not talking about a tiny Singapore here. We are talking of a
scattered nation of over 2,000 islands which has a population larger than
either Pakistan or Bangladesh. In sheer numbers, Indonesia represents the
greatest success of the capitalist system in the past 30 years. And it was
not even fully capitalist. Had it done its homework better, and not been
so corrupt, the mess it is in now, would not have happened. But even after
this mess, it is at least 3 times better off than India. 
So, in what way is India a "heck of a lot" better than Indonesia? You need
to furnish a "heck of a lot" of data to substantiate your opinion. A
farmer in India would be rather three times (!) better off than he is
today, and would envy this story of Indonesia. But if you, an elite
representative of India, consider that political rhetoric about US and all
that is far more precious to you (since it is not you who are committing
suicide out of poverty), then that is a separate issue. Sure, you and I
can hate USA (and yet work in USA) while our poor die. That is quite a
good solution to India's problem of overpopulation! Let us increase
India's poverty till all the poor commit suicide!

On a more serious note, none of these E.Asian countries can be our model,
politically. They had authoritarian regimes, and in the case of Indonesia,
serious problems of corruption, too. We are a great model of democracy (by
the way, you did not give me the point wise list of things for us to
improve our democracy). We have much to teach these nations politically. 

> Let me say this one more time: Our country would be better off when we can
> devise ways to improve the lot of the majority, who live in the villages.

So, what you are implying is that we devise even more costly and wasteful
methods to "develop" a huge 5 and a half lakh villages? And that it is
best if our majority continues to plod along in the villages? While the
world lives in cities, and you too, while the world uses e-mail and
satellites, we should keep our people in the primitive world? 

>	If we just invite any and all investments
> without a plan of what their consequences would be, we will have the
> country wrecked. 

We have this in the Manifesto: diversification of investment. Are you
implying that Baskin Robbins would wreck our country? If not, please let
us have more specific views.
> Just in case you got me wrong, I am not against foreign investment. When I
> am the borrower, I decide where to invest. If you want me to borrow, and
> invest it where you want me to, sorry, find another customer. 

Well, you have the luxury to tell us where you have "decided" (very
democratic?) to invest. Please be very precise.

> I am not arguing
> that we should promote handlooms today. 

Great. I won another point! Similarly, may I add, we should be talking of
other, more specific things that we should not be doing.

> > And coming to "personal" observation, do you know, that the Handloom
> > subsidies which are meant for the poor (that is how you get to purchase
> > handlooms at such ridiculously throw-away prices in cities) are almost
> > completely misappropriated by the government machinery.
> > 
> Now we are talking past one another. Tell me what this has to do with
> anything I said. A corrupt official is a corrupt official. It has nothing
> to
> do with socialism or capitalism. If you can prove to me that there is no
> corruption in capitalist societies, I will sign up with your group's
> manifesto today. 

I meant to show you that most of our government programs which are
"well-intentioned" are actually seriously hurting our poor. We have
created huge bureaurcacies in the name of "helping the poor." Gandhi
himself was in favor of teaching a poor person to stand on his own feet. 
He would have rebelled seriously against subsidies. I am glad that you
agree that we should not be promoting handlooms today through subsidies.

I can easily prove to you that corruption is extremely low in capitalist
countries. Please go to the web site of Transparency international for
enormous data on that. 

> The only things that I bring back from
> India are books and sarees. The sarees are 100% from the "absolete"
> village industries you mention. On one visit I actually went to the
> village where they are made. 

After writing the thing on handlooms (in a hurry) in the morning, I was
sure you would raise this point. Simply shows that you are unaware of the
huge magnitude of subsidies that go into the system to promote handlooms
of a kind and quality that no one can wear. That kind of stuff never sells
at its cost price, but has to be sold much below cost price. Weavers who
produce that kind of material must shift to other activities and cannot be
subsidized for ever (even assuming that the subsidies are not

Handlooms of a good quality do not need to be promoted by government. 
Coops of weavers and other organizations can do this job on their own
without government intervention.

> > You ask government to subsidize the purchase of these goods. From where
> > does this money come? From your taxes. But what is happening to these
> > taxes? Most of it is cleanly misappropriated by your favorite government
> > officials. They why not straight-away raise the salaries of government
> > officials if you love these officials so much?
> There you go again. Tell me where I supported corrupt officials. If you
> continue to misrepresent me, I will unsubscribe and leave you alone to
> write the ideal manifesto!

I was combining two things: your concern for poverty and concern that
government should be as large as necessary. It was not clear to me what
you meant. I am sorry about that. I see that you agree that we should
close down the Handlooms Department (in principle) or at least the
subsidies, and so we agree on that. That will be recorded in the

> > Mr. Ari, our villagers will all DIE if you do not provide them with modern
> > opportunities to get out of villages and come to cities. We are having a
> > few suicides now among farmers. Some engineers have started committing
> > suicide because of corruption. Educated youth in Assam and elsewhere are
> > taking to arms in frustration. Many people are abandoning the country in
> > search of SOME other opportunity. The whole thing will become a flood if
> > you do not bring in more investment and technology and competition into
> > our nation, at once. Do you not see this urgency? 
> I do. I have no quarrel with anything you said in this paragraph except
> that it is not necessary to empty the villages and bring everybody to the
> town just because it was the way in the USA. Opportunities can be created
> in the villages too. All factories don't have be in big towns. Do they?

Please propose the exact nature of the opportunities that you think should
be promoted in villages.

> > About poverty. Why should India have improved in the last 10 years? Just
> > because someone said that there is "liberalization." Sure, there has been
> > a wee bit. But it was more of a flip-flop than a "real" one. A majority of
> > people are still firm believers that government bureaucrats know best.
> Sorry I don't buy that. I never believed that bureaucrats know best. If I
> did, I would have believed you and signed up with your theories a long
> time ago.

If bureaucrats do not know best, and politicians do not know best, then
who knows best? 

I think you will now have to buy "my" theory of capitalism (I did not know
that I was the inventor of capitalism. Do I get a Nobel Prize or what?) in
a big way. 

Because, what you are implying now is what I have been saying all along:
That it is you and I, collectively, who know best (vintage Hayek, again).

In other words, we tell the producer what to produce, based on our buying
decisions. We, together, determine prices, and we together, wish to get
rid of any interference by government in prices unless there are market
distortions like monopoly. 

I don't trust bureaucrats either, because they are amateurs. Even the most
expert economists, however, simply throw up their hand when asked to fix
the prices of coal, coca cola, or whatever. Not in India, of course, where
every clerk in the Government knows the "forumla" of fixing prices, fixing
new subsidies, etc. 

The system in which bureaucrats fix prices and subsidies is called
socialism. That system in which markets fix prices is called capitalism. I
hope you will buy capitalism now, in its pure, theoretical form, and that
we can proceed further, hand in hand. 

No real economy is purely capitalist nor purely socialistic. Therefore we
can only classify nations on a scale of 1 to 10 as capitalist or
socialist, and clearly today India is far more socialist than capitalist.

Do you find the Preamble objectionable now? 

> > Strangely, despite your claim that none on this list have worked in the
> > field, I have been a rather outstanding bureaucrat (pardon my apparent
> Another misrepresentation! I didn't say that none of you worked in the
> field. I just said that you should get out of this manifesto writing, and
> do something about the current situation. Don't you wish the students of
> Indonesia wrote a manifesto rather than demonstrate?

I think of this task of offering India a right, to be like building a huge
bridge or a skyscraper. We cannot build it without a clear picture of what
we want and how to do it. I really don't care what the students in
Indonesia did, but I know what some students in Assam are doing (chanting
the communism of Che Guevara and using guns to simply kill off their
opposition), and I don't think we, as grown up, responsible citizens,
should let the situation in India deteriorate further.

> > might. Do you have better predictions? You seem to believe that we must
> > expand our government. So, shall I make all the villagers government
> > employees? Shall I nationalize every paan shop?
> If I see one more instance of misrepresentation, I would say you need
> remedial help with the English language! I didn't say we have to expand
> our govt. I said the govt would be as big as what it has to be, depending
> upon what we want it to do. 

Sorry. I do exaggerate a bit. But it was intended to get us back to
understanding more specifically what we want. What the Preamble says is:

"There is a role for government not only in the basic tasks of governance,
but in economic activity. But that role is very, very small."

If we are to let markets determine prices and not let these amateur
bureaucrats, completely ill-equipped to fix prices, do so, then we have no
option but to let the bureaucrats only work on things like monopolies. We
don't want most of the economic Ministries of India. We want to privatize
public sector units, etc. That means that the role of government in
economic activity is rather small. Then what is it that you found wrong
with this in the first place? 

> there are NO SMALL INTELLIGENT govts that do everything you want
> them to do. 

We actually do not want the government to do a lot. If it simply provides
law and order that would be an achievement of unmeasurable proportions! 
But we do want it to do a bit more, and so we have this huge Manifesto

We would also like the bureaucrats to be very well-trained, so that they
are not only intelligent at the time of recruitment at the age 22, but
remain so later, as they progress through their careers. Also, politicians
might do with a bit of training. The opposite of "small intelligent
government" is "big foolish government." I am sure you don't want that
(though we have had such for the past 50 years) !

> > One fine day, people will realize that they no longer care for this
> > nuisance called socialism - a synonym for falsehoods at each level.
> Even the most capitalist of countries needs socialist components in the
> governance to prevent the country from falling apart. Capitalism increases
> the wealth of the nation. Socialism keeps it human. A nation cannot work
> with one of them exclusively.  As long as you don't understand that, your
> manifesto will be amateurish. 

Please let us not mix up socialism with "being good." That is a problem of
definition, I believe, but socialism clearly refers to, in the literature
of all disciplines, to a bureaucratically planned economic system, where
bureaucrats fix prices. 

What you are referring to is known in the literature as "welfare state."
E.g., the US is today a huge capitalist society with a welfare state.
India is a huge socialistic society with a welfare state. 

We are very very serious about humans. That is what elimination of poverty
refers to, I believe. That is what providing a social security net refers
to, I believe. 

What one is dead against is wasteful government expenditure by amateur
clerks and officers who are adept at dumping good money down the drain in
every sphere. These same people can be made to restrict their attention to
law and order, defence and the provision of money, etc., and they might to
a superlative job. But give them these great opportunities to meddle with
the economy and they cause complete ruin.

Do you agree by now that this manifesto is not the least amateurish; 
quite to the contrary, in fact? Perhaps you have not read the whole
thing, and need to spend some more time seeing its complete flavor.

> I want India to become prosperous. But not at the pace world bank wants it
> or IMF wants it. These folks, and folks like you, would surrender the
> country to foreign merchants in no time. 

What! Please do not look down upon these economists. Biases of any type
can lead a human being astray. Remember Buddha? You said that no one knows
the entire truth. The same holds for you. The economists in IMF and World
Bank have done whatever research they could to the best of their
understanding. We can use their studies to our gain, to eliminate poverty.
Dumping aside a huge body of knowledge could be very foolish.  If you have
better data, better studies, please bring them on. But do not throw away
good knowledge. 

And about foreign merchants, I say to you, if you are afraid of foreign
merchants, then please, you do not do this great nation of traders, called
India, any good. We were a power to reckon with in Asia when we traded
freely with with world a thousand years ago. We cannot be scared of people
who sell goods!

I am of the firm view that that by ruining our economy and our
competitiveness completely, it is our socialistic thinking that is going
to surrender us to the whims of the US, in the very short run. 

For example, in 1991, it was our socialistic leaders (not me, please
note!) who completely surrendered our self-respect to the west. Our gold
from the Reserve Bank had to be physically flown into the Bank of England
before we were loaned the dollars that we desperately needed to prevent
complete social unrest and political breakdown. It was the believers in a
"planned economy" who pawned our pride away, and it is they who will do so
again. Or else, they will starve our people like the North Koreans are
doing to theirs.

> I would rather have India
> become prosperous at the pace that it can sustain for a longer duration.
> It should not suffer the indignities experienced by Indonesia or South
> Korea.

Could not resist: do you imply that these "indignities" were undeserved?

(1) That Suharto should have carried on with his corruption and that
students were wrong in removing him (or you are implying, I know, that it
was the USA who removed Suharto! The great USA!)?

(2) That if a monopolistic coterie is removed (the chaebols in Korea)  and
people are made to compete more openly, then that is an indignity for

I am sorry, I couldn't catch the argument about the indignities to the
corrupt and monopolistic. I hope you are not a secret admirer of Suharto! 

I would rather suffer the "indignity" of completely dismantling our
socialistic pattern of economy, throwing out our gloriously corrupt and
fat socialistic public officials, and giving our people one more chance,
than "become prosperous at a pace that we can sustain" (a pace at which we
run like beggars to the IMF every few years because our bureaucrats are
experts in 'market interference' and in ruining our rupee? Becoming 3
times poorer than Indonesia! That's prosperity?)

If you have specific points to add/ subtract to the Manifesto, we can

Hope we are in complete agreement on everything now and can start the
process of going into the details of the manifesto ...