No menacing statistics, no mindboggling charts. The Intelligent Person's Guide to Liberalisation by Amit Bhaduri and Deepak Nayyar is a slim volume written lucidly which the authors claim is a de-ideologised plea for liberalisation with a difference. If you had enjoyed the American paperbacks offering popular exposition of intractable theories in economics or natural sciences and had yearned for some such stuff on Indian economy, here it is. The elderly reader may find the title nostalgic but the young will lap it up for its racy reading, chic cover and style of presentation.
Despite the charmingly popular style, the book is no liberalisation-made-easy simplification. Upon careful reading, the intellectual finesse of the authors is clearly discernible: they have neatly packaged in a slick style a consistent theoretical framework for a critical review of liberalisation process as well as the neo-liberal gospel guiding it. In an ingenious attempt they have deployed the very same neo-classical shot gun used arbitrarily by the ideologues of liberalisation, to blast them with more precisely aimed shots.
More than that they have attempted, on that basis, to develop a general theory, sort of a unified approach for a comprehensive critical review of liberalisation covering fiscal stabilisation, foreign investment and trade policies, financial sector reforms, approach to public sector, agriculture and social sector policies. It deals not only with the general theoretical formulations of IMF-World Bank ideologues and their local acolytes but also the practical course of liberalisation as implemented in the last five years. Taking production, productivity and growth as their central anchor they have put every major policy measure of liberalisation under ruthless scrutiny, exposed their shallowness and at the same time have called for a sustainable, meaningful liberalisation.
Whatever may be the theoretical demerits of this approach it serves to provide concrete and incisive analysis, and an exposure, of the limitations of every specific facet of official liberalisation. Of course, in the overall result, the reader may get an impression that the authors are often self-contradictory: pleading for those very things which as per their earlier assertions are totally negated by liberalisation, which they however hope can be accomplished by a better-managed, ideal liberalisation. Anyway, we are not so much concerned with the limitations of this theoretical approach here but the utility of the book consists, in a large measure, in the brilliant fragments of analysis which amply debunk the cocksure claims of the market maniacs that will be quite convincing to even some of the blind worshipers of the liberalisation.
That is why one shouldn't be put off, at the first instance, by the claims of the authors that they strike a golden mean between the rightwing zealots "who simply reiterate their faith in the magic of the market place" and the leftwingers "who tend to see liberalisation as an unmitigated disaster". Nor should the reader shrug his/her shoulders at the so-called `Middle Path' in this `Age of Extremes'. One can give a nod of understanding if one is able to see that the authors are primarily addressing themselves to the `intelligent' reader who, more often than not, also happens to be the skeptical reader who wouldn't like to `prejudge' anything including the five years of experience of liberalisation, the confirmed neutral who would really hate to be swayed by this or that ideology or the average pro-liberalisation enthusiast who, in tune with the times, became a convert to the cause of liberalisation but who is now not so sure. Before he or she reaches the concluding chapter of the book the `open-minded' reader will come to the conclusion that everything is bad about liberalisation as it is being implemented in India no matter whether he or she forms some new illusions about some ideal liberalisation.
In the second chapter of the book, the authors give a detailed account of the origins of the payments crisis of 1991 and the response of the managers of the economy. From this they come to the that the entire strategy of liberalisation was a crisis-driven response. Can the entire strategy of liberalisation be attributed to the needs of crisis management? Of course, the authors themselves pose the right questions: "First, why did a relatively minor crisis in the economy evoke this response while decades of persistent poverty and mounting unemployment had so little impact? Second, how were such far-reaching changes introduced by what was then a minority government while predecessor governments with overwhelming majorities, such as that of Rajiv Gandhi, were unable to do so despite their stated intentions to liberalise?" But they prefer the simple answer of economic compulsions of crisis management. Well, the crisis might have triggered off and hastened the strategy but it is difficult to overlook that the crisis itself was fitted into the overall strategy as a justification component. It is not just a conjuncture of events but a coincidence of class interests, a redefining of the convergence of mutual interests of a sizable section of domestic elite and the forces of international capital which dictated the strategy. The strategists were probably well aware that a step-by-step `planned' liberalisation may not work given its very class character. The dilemma on the pace of reforms and the debates between big-bangers and gradualists the world over amply testifies to this. The crisis and the IMF-World bank conditionalities seem to have played a part only up to a point.
One of the strong points of the book is the easily understandable explanations it offers about the bankruptcy of the IMF orthodoxy which advocates fiscal stabilisation/contraction in the belief that a reduction in the government deficit will lead to a reduction in the prices, and through greater competitiveness in the external markets and greater exports, trade deficit or balance of payments deficit will come down. The authors show that in countries like India, instead of mere price effect, the fiscal stabilisation depresses investment, production and level of employment also before having its intended effect. They however attribute the blindness of the IMF orthodoxy to the socalled banking principle where the lender is more interested in the ability of the borrowing government to repay than the developmental priorities of the country. Are matters that simple? If this had been the case, these institutions will simply insist upon one or two measures as devaluation as a collateral conditionality and not be demanding, like Shylock, a comprehensive package of structural adjustment. It only proves that they are championing the interests of international capital in the developing world in a more sophisticated way.
The authors give a fairly good account of the new internationalisation of the process of production and the changing international division of labour under the aegis of MNCs and what they call as the strategic withdrawal of the state everywhere. But it is difficult to agree with them when they accuse the Left of overlooking this entire process and raising the bogey of erosion of the sovereignty of the state and even equate the Left with BJP on this: "`Left-leaning' economists in the Third World often tend to see `liberalisation' as an encroachment on `national sovereignty'. And ultra-nationalists try to assert themselves, in the cultural sphere, through the slogan of swadeshi. And yet, they seldom realise that this concern is fairly widely shared in the West....we are in an era where the old-fashioned autonomy of the nation state is being eroded by the multinational corporation everywhere, both in the First World and in the Third World." True, the state everywhere has less and less capacity for regulation of MNCs. But the issue at stake is different. There can be no denying the aggravation in the conflict of economic interests between the First World (including their MNCs) and the Third World and it is for the authors to explain whether most of the policies adopted by India are reversible, with the kind of treaties they are entering into, even if for some reason the Indian state to do it.
Referring to the lingering fiscal crisis marked by high fiscal deficits and a growing revenue deficit, the authors point out that the size of the deficit or the amount of borrowing are the symptoms and not the disease: "The real problem is the use to which government expenditure is put in relation to the cost of borrowing by the government. The cost of borrowing has risen significantly since the onset of economic liberalisation...On the other hand, the use of borrowing in the era of economic liberalisation remains as unproductive as before. If anything, a much higher proportion of government borrowing is now being used to finance consumption expenditure which yields no return. There is no discernible effort to increase the productivity of investment expenditure. Even worse, the level of investment expenditure has declined because the process of fiscal adjustment has created a massive squeeze on public investment." Nayyar and Bhaduri blame it on the IMF theory which says public investment `crowds out' private investment and say this theory has wrought havoc causing both the level of savings and investment to fall affecting growth prospects in the medium term.
They also flay the anti-public sector bias of the reformers: "The approach to public sector reforms characterised by asset sales and closure constitute the most unimaginative, perhaps opportunistic, form of privatisation without any attempt at genuine restructuring. It is neither adjustment nor reform". If the public sector reforms have not made any headway the reason is that "There is a deeper malaise which stems from the politics of appropriation and the system of sharing the spoils. Many public sector enterprises serve as cows that are to be milked by politicians and bureaucrats."
On these and various other similar well-argued points there can be hardly two opinions among those who desire genuine change. Throughout the book, the authors repeatedly highlight the divergence between the priorities of development and that of the government, the needs of the people and the preoccupations of the economic managers and make a forceful case for higher allocations for social sectors, human resources development and for basic needs of the masses. In short, a more efficient liberalisation with a pretty human face. It makes a nice reading as a series of well assembled good intentions, of course each backed by the analytical prowess of seasoned economists. But the weakest side of the book is the political economy. If the liberalisation is not 'efficiently' managed and is not accompanied by a human face, then the faulty theories and inefficiency apart there must also be strong reasons relating to the social character of this whole exercise which appears to be beyond their comprehension. If liberalisers all over the capitalist world have not been able to come up with an ideal version in practice and have not been able to combine market reforms with a credible social package, leave alone a social consensus, then shouldn't the reason be sought beyond mere short-sightedness? Making a forceful plea for transparency in economic management the authors hope, somewhat naively, that information flow will set the priorities straight and will bring about social consensus and even a social contract for liberalisation!
There is also a well-written chapter in this book carrying a normative analysis on state-market relationship - which can be read as a separate work in itself - where the onesidedness of both the proponents of the stale Nehruvian Socialism as well as liberalisation have been debunked and a dynamic symbiosis between state and the market is stressed. Yet they don't pose the question why even in some cases under certain conditions the best of such symbiotic relations fail. The answer of course can only be sought elsewhere, among the Marxist writings.
The timing of publication of this book and the coincidence of its ideas with the ascendancy of centrist politics and the originally professed but now given up economic ideas of the new rulers - are they just incidental? We are not sure. But before long the UF leaders have exposed themselves to be more simple-minded followers of liberalisation philosophy. The Harvard-trained lawyer now ensconced in the Finance Ministry, the 'headquarters of liberalisation', cast in the mould of an overzealous go-getter rushes in where even his predecessor feared to tread and now even makes Manmohan Singh look like a relatively more cautious and seasoned hand. The authors may or may not agree with our contention that there is no ideal 'golden mean' liberalisation but events might have already forced them to the conclusion that there is no ideal middle-of-the-road politics either.