Economic slowdown: If a country records slow growth, it has only immediate policy failures to blame

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Published: December 9, 2019 12:32:41 AM

If a country records slow or retarding growth, it has only immediate policy failures to blame, not the deep unchangeable past or religion/culture

Hindu nationalists, Hindu rate of growth, economic growth, Hinduism, Human Development Index, income growth, unemploymentProfessor Raj Krishna, who was a rare example of a witty economist, made the pun when discussing the then low secular rate of the Indian economy, about 3.5% .

The expression ‘the Hindu rate of growth’ has often incited anger from Hindu nationalists, who think it an insult to the Hindus. It was meant as a pun on the word secular, which, in economics, stands for long run, e.g., the secular rate of growth. Professor Raj Krishna, who was a rare example of a witty economist, made the pun when discussing the then low secular rate of the Indian economy, about 3.5% .

Recently, someone challenged my claim that it was meant as a pun. He believed there was a serious intention of saying that there was something in the Hindu religion that led to low growth. If that were so, the much higher growth rate in the twenty-odd years since 1998 has disproved that proposition. If anything, the Hindu religion has had greater prominence in Indian politics since 1998 than in the previous fifty years.

However, now that the growth rate is on the downward path, arguments are being heard from BJP MPs that the GDP is irrelevant. Immediately after the victory in May, we heard that it was politics, i.e., Balakot, which won the day, not growth rate or unemployment. So, we can get back to the question. Is the expression ‘Hindu rate of growth’ just an economist’s joke, or is it for real? Is Hinduism bad for economic growth?

As an economist, I find the economic explanation sufficient to explain why economies grow faster rather than slower. It is not that culture and religion do not matter—they define a people. But, they are higher order, i.e, less important, explanatory variables for economic growth differences between countries.

But, the origin of this question about the effect of religion/culture on economic outcomes began not in explaining underdevelopment, but the contrast between North-Central Europe and Southern Europe, or what was, in essence, the Protestant as against the Catholic culture in Europe.

Max Weber, the great German sociologist, posed a question, back in the last century, that reverberates today. It is about the intimate connection between religion and economics. Weber asked why capitalism emerged first in the Protestant countries of North-Central Europe rather than the Catholic countries of South Europe. Capitalism was synonymous with rational calculation, rather than trusting higher powers of God and fate.

Rumy Hasan’s recent book Religion and Development in the Global South has adapted the Weber question not to ask why capitalism, in whatever form, did or did not emerge in some region or other; he is, instead, asking a question that is relevant to mine: The expression ‘Global South’ in his title immediately tells you that he is speaking of underdevelopment in a global context. South stands for poverty, underdevelopment, and repeated failure to escape the low-income-level trap.

So, is religion a cause of persistent underdevelopment in the South? He considers Islam, Hinduism, Christianity, and Confucianism, using the available data on Human Development Index (HDI). Except for the oil rich countries, the 49 Muslim-majority countries are, by and large, in the global South. Most of them score low on HDI. South Korea, Taiwan, Japan, and China have all disproved the old idea that Buddhism or Confucianism is an obstacle to growth.
The usual blame for persistent poverty used to be laid on population growth. But, recently, the talk is of Malthusian dividend. So, fashions change. It was believed that Hindus are other-worldly, believing in selfless work without regard for rewards. But, even so, India had flourishing financial markets linking the subcontinent centuries before mercantile banking began in Italy. Indeed, it was the ban on usury in the Abrahamic religions that obstructed financial growth. The Italian bankers called themselves money exchangers, not money lenders.

Many people in the global South would blame the imperialism for retarding growth. While in 1500 CE China and India had the same share of world income as they had of world population, that only meant their per capita income was the same as world average. There were already European countries such as Italy, France, and England that had higher per capita incomes. Imperialism reduced incomes of China and India, but for China, the stagnation had started before the Opium War.

Now, seventy years since the departure of the imperialists, time has come to explain slow growth not in terms of deep unchangeable past, but those of immediate policy failures. Every one in every country would like higher, rather than lower, incomes. If a country fails, it should blame itself, not the past, or religion, or others.

A real test of this proposition may come in India. The income growth is slowing down after twenty years. Is this a blip, or is it a sign of the influence of religion or culture? Is Hindu nationalism good or bad for growth, or just irrelevant?

The author is a Prominent economist & Labour peer. Views are personal

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