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Working with a market economy

*Economic Policy and State Intervention

Selected Papers of T.N. Srinivasan

Ed by N.S.S. Narayana

Publishers: Oxford University Press, New Delhi.

Price: Not mentioned.

ECONOMISTS are a respectable breed in the parlour of policy making initiatives in government bodies. In fact, economists are making useful contributions not only by helping solve problems but by pointing out to problems that need to be tackled in the imm ediate future. The role of economists today is not of data-dispensation but also more of development programming.

As an econometrician, T.N. Srinivasan, a towering foreign-based Indian economist, has contributed significantly to understand both the internal as well as the external problems of developing economies including India.

His contributions in the areas of development economic policy range from choice of techniques, optimal savings and growth, planning models, applied general equilibrium analysis, international trade, agricultural economics and rural development, demograph y, poverty and income distribution, and environmental economics to energy and nuclear options.

His writings are often characterised by two qualities: theoretical analysis of a problem and its relevance in the contemporary world. As an analyst he is descriptive and empirical and as a policy adviser, normative.

The editor of the volume selected 21 theoretical, empirical and prescriptive papers of T.N. Srinivasan's individual and joint writings with most outstanding world economists spanning over three decades.

The lengthy introductory chapter sheds light on the salient features of the chosen articles. All published papers are compartmentalised into 11 broad categories. They are: Growth Models, Investment Criteria and Optimal Savings, Trade and Foreign Investme nt related Issues, Some problems of developing economies, India's performance, Rationale of Indian Economic Reforms, Data, Conceptual, and Measurement Problems, Poverty, Hunger, and Agriculture, Population, Nuclear options, Political Economy and an Epilo gue.

To Prof Srinivasan, economics is an empirical social science with a strong analytical core based on mathematics and statistics. It has roots in moral philosophy and behavioural psychology. He places great trust in neo-classical economics.

One of the results of neo-classical economic theory is that both resource-efficiency and individual freedom of choice are brought together under the competitive market mechanism.

As one of the main proponents of `Economic Reforms' in India along with xxxxxBhagwati, he advocates a relatively greater reliance on the efficiency of market forces for resource allocation and resource-use efficiency -- both in internal markets and exter nal markets.

He does not see a trade-off relation between the social and cultural values and the resource-use efficiency. Since the objective functions are, however different, solutions may differ even if the constraints are the same.

Any meaningful evaluation of any policy reform is possible only by comparing the economy after the reforms are completed and have had their full and intended effect, with a counterfactual state that the economy would have been in, given the same economic environment erogenous to policy, had there been no reforms.

As such, while it is too soon to see the medium to longer term beneficial effects of reforms, recent economic performance will surely reflect in part the inevitable and unavoidable short-term costs.

Anti-dumping measures (ADMs) and practices are currently being used for protectionist purposes in the EC and in the United States, even though the rationale for anti-dumping was the notion that predation needs to be prevented for free trade to assure mut ual gain for the trading nations.

Recently, a number of developing countries including India have taken recourse to ADMs. It is possible that if ADM laws become widespread and are used strategically, such strategic interaction will restrain their principal users, namely the US and EU, be cause their own firms will become targets of ADMs in countries with whom they trade.

If this argument has any merit India must retain what exists, and create wherever necessary, appropriate anti-dumping procedures and institutions to implement them. But India should also learn, from the grossly abusive practices of the United States and of the EC, to devise procedures which will truly assure fair trade instead of being captured by protectionists. India should join forces with other developing countries and oppose any weakening of the anti-dumping discipline.

As long as a country is too small to influence the terms at which it trades with the rest of the world (and India is such a country in most goods and services), the fact that others do not follow liberal trade policies is not relevant for India's trade p olicy choice.

A small country by being `wrong' can only hurt itself whether or not others are `wrong' or `right'. Of course for a liberal trading system to survive, others also have to follow the right policy. And this is the reason that one should vigorously criticis e G-7 for its failure to follow a liberal trade policy.

Poverty is predominantly a rural phenomenon and a large majority of the world's poor live in southern Asia, where the incidence of rural poverty is greatest among agricultural labourers, tenants, and small farmers.

Lack of adequate access to land, irrigation water, and credit is a major cause of their poverty. In particular access to agricultural resources such as land, water, technology, and credit, and to opportunities for gainful employment in agricultural and n on-agricultural activities will determine the extent of poverty.

Several policies have been suggested, and a few have been tried, for alleviating hunger and poverty. There is no realistic hope of redistributing wealth or income, and only rapid economic development can help the poor through a trickle-down process.

State intervention often ends up in disrupting traditional production, credit, and exchange relations in the rural economy without replacing them with less costly and more beneficial arrangements from the point of view of the poor.

Attempts at ensuring food security through the operation of domestic buffer stock, coupled with the need for acquiring grain for the public distribution system in urban areas, have led to the introduction of several distortions in the food grain economy of many countries.

Based on his theoretical analysis and evidential events, Srinivasan firmly believes that a market economy, by and large, is the most appropriate form of economic management from the perspective of development; and while democracy is to be treasured for i ts own sake as a bastion of liberty and a market economy might make it possible to sustain democracy over extended periods of time, authoritarianism is not necessarily inconsistent with the use of markets for economic management and for promoting develop ment.

This compendium is a valuable referral to economic analysts, economic thought processors, policy debaters and development browsers.

P. Jegadish Gandhi

The reviewer is Honorary Director, Vellore Institute of Development Studies.