The government or the country has had no chance to celebrate the 20th anniversary of liberal reforms. The decisive shift in economic policymaking, which Narasimha Rao with Manmohan Singh and P Chidambaram inaugurated, has been vindicated. India is now a byword for economic competence and a seriously high ranking member of the G20. Of course, there are still detractors of the reforms both within and outside the Congress. The excessive corruption we have seen exposed is blamed on the reforms as if the first 40 years of independence were squeaky clean. People say inequality has increased. Yes, we see more of it since the media is not restricted to just Doordarshan. The media displays the wealth of Indians, but inequality was never absent in India. It was well hidden.
The real question is not whether the reforms have worked but why did it take India so long to stumble on the right model. After all, India never became a completely planned economy ? la China. Deng Xiaoping saw the writing on the wall and in 1978 changed Chinese economic policy root and branch. He, a life long Leninist, realised that everything he had believed about capitalism was mistaken. Nearby Taiwan, whom the Communists held as beneath contempt, had become a miracle economy and the Chinese had been left with an iron bowl with little rice in it. The decisive change came after 29 years of economic policymaking, which was based as much on the fantasy of an ageing Mao as anything else. This resulted in the largest famine of modern days.
Compared to China?s 29, India took 44 years to correct its course. This is because, at their very worst, the Congress policymakers were never as cut off from the people as the Chinese Communist Party was. India never had a famine; just endemic starvation. That was thanks to democracy.
I have a theory that newly independent nations take a while to grow up and come to their senses about the compulsions of economics. To begin with, their leaders indulge in the half understood rubbish they have picked up in their youth the essence of which is a rejection of reality, especially as it reflects alien rule, and idealism which is easy to acquire and hard to shed. This has happened elsewhere. I have heard Julius Nyerere, the charismatic head of Tanzania, confess that his policy of Ujama?uplift of the poorest?ruined the economy because it was based on an idea of socialism borrowed from the USSR, totally unsuitable to African conditions. Mozambique has had 36 years of independence, but the first 25 were spent on unfeasible economic programmes. Now it is a shining example of macroeconomic responsibility and is enjoying some decent growth at last.
South Africa is currently having a similar debate about its economic policy. Years of apartheid created a two or three tier economy. South Africa is the most prosperous of all the sub-Saharan countries and always has been from even before the collapse of apartheid. At that time, there was a high degree of public ownership in the organised sector and trade unions were strong. But nationalisation and trade unions were designed to consolidate the gains of the white minority. Black trade unions had a tough time on their hands to defend the rights of their members in an atmosphere of rampant discrimination.
The debate now has gone back to nationalisation. South Africa has suffered from the recession, especially in its mining sector, which shed much labour. The programme of Black Economic Empowerment has not been working as fast as was hoped. The idea was to increase black ownership of mines and other businesses. Yet black unemployment remains stubbornly high. The answer of populist politicians is to nationalise the mines. This is supposed to remove any economic calculations in employing workers. Boom or bust employment has to be increased. When in Johannesburg recently, I tried to follow the logic of as to why this would help and not wreck the mining sector by making it uncompetitive.
South Africa has had only 17 years since the end of apartheid. It may be that the age of wisdom has not yet arrived. To empower the black people, South Africa needs a radical skilling initiative so that black unemployed workers can become employable, plus a programme for small and medium enterprise (SME) creation, since it is the SMEs who are the major employers in every economy. But a suspicion of the private sector pervades the African National Congress. Any idea that SMEs in the private sector will be the engines of employment creation and empowerment has no chance of advance. The public sector is much more amenable to uneconomic manipulation and that is what we may very well get. Perhaps another 10 years or so and wisdom may prevail. In the meantime, South Africa will ?enjoy? its own equivalent of the Hindu rate of growth.
The author is a prominent economist and Labour peer