RECALIBRATE CAPITALISM SUGGESTS INDIAN MINISTER

At the World Economic Forum in Davos, India’s Commerce Minister Nirmala Sitharaman, made a preposterous statement. She suggested that the world needs to do a “reality check” and that in countries where capitalism and democracy co-existed, it was “time to pause and recalibrate”.

Now, Ms. Sitharaman is no ordinary citizen. As Commerce Minister of a nation aspiring to move into the upper echelons of developed global powers, it is her responsibility to spread the gospel of free trade, open markets, deregulation, and to market India’s progress in economic openness. And at international forums, where she speaks to a large audience of foreign investors on behalf of the Indian government, her statements doubting democracy and capitalism are extremely troubling.

So what exactly, according to Ms. Sitharaman, needs recalibration in India–the political philosophy of democracy or the economic doctrine of capitalism? Given the recent actions of the leader of her party, it is not hard to imagine that perhaps both democracy and capitalism may be at risk in India.

Politicians like Ms. Sitharaman are a stark reminder of what is wrong with Indian politics, and why even after almost 70 years of independence, India still languishes at the bottom of most global welfare and business rankings. It was Nehruvian socialism, followed by Indira Gandhi’s coercive nationalization, that reduced India to a basket economy by the year 1990. Per capita income from 1947 to 1991 grew only 1.5% annually and average growth rate during that period was a meager 3.5% per year. So while in those years average per capita income around the world grew by over 400%, real income in India rose by a mere 65%. In 1947, South Korean per capita income was $ 770 or less than twice India’s per capita income of $ 439. By 1960 South Korean per capita income was 4 times larger and by 1990 it was 20 times greater than that in India. Almost all Asian countries grew at twice the rate of India; Pakistan grew by 5%, Indonesia by 6%, Thailand by 7%, Taiwan by 8% and South Korea by 9% annually.

During this experiment with socialism, over 300 million people or roughly 50% of the Indian population lived in poverty. Such widespread was the poverty that the Congress party adopted ‘Garibi Hatao’ (remove poverty) as their Election slogan. Of course, such shameless sloganeering aside, almost nothing was ever done to create wealth, and so the majority of people country stayed mired in misery and poverty.

Wealth must first be generated before it can be distributed. Clearly, India’s short-sighted government and bureaucracy were clueless about what creates wealth.  They operated in the illusion that somehow only central planners had all the wisdom and could manage complex ecosystems like the economy by pulling the right strings sitting in Delhi. While economies around them, the Asian Tigers like HongKong, Singapore, South Korea, Taiwan, were using principles of free markets and laissez-faire capitalism to bring wealth and prosperity to their citizens, Indian planners were busy with Soviet-style centralized planning.

Mr. Manmohan Singh and Narasimha Rao changed all that in 1991, not by some radical out-of-the-box economic policy, but simply by getting the government out of the business of running the economy and commerce. The economy became market-oriented, trade policy was liberalized, markets deregulated, capital controls reduced, and foreign investment encouraged. The rest is, as they say, history. From a state of absolute crisis at the end of 1990, the Indian economy grew at an average rate of 6.7% annually, more than double the rate of the socialist era. Capitalism and free markets won once again, as they repeatedly had in other parts of the world. In the past 26 years of capitalism real income in India has increased by more than 500% and there have been huge improvements in the standard of living for all economic classes. The percentage of the population living in poverty which remained almost unchanged in 43 years of socialist policies has dropped from 50% to 12.5% all due to free market policies and capitalism.

This evidence stares Ms. Sitharaman in the face, yet she goes out at an international forum where foreign investors are gleaning her every word to get insight into future policy direction, and still makes these asinine statements about the need to revisit capitalism and democracy. Between the policy recklessness of demonetization and irresponsible statements like these, foreign investors have to be wondering whether India is worth the risk.

What prompted Ms. Sitharaman’s to make such statements? It was the annual Oxfam report on global inequality which claims that eight people in the world controlled as much wealth as the bottom half of the world’s population. The same organization last year asserted it was ‘62 people own the same as half the world’. This year, mysteriously, the number dropped to eight.

Now, Oxfam does this to raise funds for their organization. Ignoring the veracity of their methodology–which Oxfam never reveals–or the accuracy of the statistics, Oxfam conveniently forgets to mention the vast wealth and employment created by these eight people. For example, more than 90% of the computers in the world use Microsoft software. It would not be an understatement to say that the increased productivity from using this software has created trillions in wealth for millions of users all over the world. Oxfam itself, by using the Microsoft Word software to write this report probably saved over a thousand man hours over using a typewriter.

None of the eight “ rich “ people that Oxfam mentions in its report coerced people to buy their products and services. People buy Zara voluntarily because they like the clothes; individuals and businesses use Microsoft products because they enhance productivity; people use Facebook voluntarily to connect with friends, and businesses use it for digital marketing.

Any person that earns money honestly and without coercion has every right to make more money than others. To denounce these people who collectively have volunteered to donate over $ 200 billion of their wealth to wipe out global poverty–more than any group or government in history–is a travesty that all liberty loving people like Ms. Sitharaman should condemn.

What is reprehensible is that organizations like Oxfam put out these titillating reports to raise millions in donations. Their financial statements reveal that more than 21% of the money raised goes towards salaries. An Oxfam executive was recently arrested in Britain for embezzling money for his personal use. The organization might be doing some good work, but Bill Gates ( one of the eight robber barons in the Oxfam report ) alone has donated more for global hunger, disease, and poverty–about $ 30 billion– than an organization like Oxfam could do in a hundred lifetimes.

Playing one group against another, especially rich against poor, is an old trick, that politicians like Ms. Sitharaman understand well. But, what she must learn is that India’s destiny as a capitalist democracy is now well entrenched, and its citizens will not permit any politician to recalibrate that. Indians now clearly understand that the competitive capitalism that provides economic freedom also promotes political freedom because it separates economic power from political power, and in this way acts as a check on the powers of government and provides effective protections of freedom of speech, religion, and thought.

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2017-04-17T20:43:18+00:00 January 27th, 2017|

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