Optimising economic policies for growth

ECONOMIC POLICY & STATE INTERVENTION - Selected papers of T. N. Srinivasan: N.S.S. Narayana - Editor; Oxford University Press, 2/11, Ansari Road, Daryaganj, Post Box No. 7035, New Delhi- 110002, Rs. 745..

THIRUKKODIKAVAL N. SRINIVASAN who is among the celebrated expatriate Indian economists who have made name and fame abroad, is currently, Samuel C. Park Professor of Economics and Chairman, Department of Economics, Yale University in the U.S. He is a product of the Loyola College, Chennai, who received professional training in statistics at the Indian Statistical Institute, Calcutta.

He has been on various prestigious assignments like Special Advisor, Development Research Centre, World Bank, visiting professor, MIT & Stanford, visitor, Institute of Economic Growth and has been the recipient of such awards and honours like Ford Doctoral Dissertation Fellow, elected Fellow of the Econometric Society, elected honorary member, American Economic Association, Mahalanobis memorial medallist and what not. More than 16 books were published by him either singly or as co-author and articles galore had appeared in prestigious journals devoted to development economics.

Along with Prof. Bhagawati, he had propounded the modern theory of world trade and is a champion of economic reforms in India.

He has worked on dynamic models of economic growth and development. His doctoral dissertation included a demonstration of what Edmund Phelps christened ``The Golden Rule of Accumulation''. He has been contributing to the pure theory of international trade analysing the welfare consequences and implications for factor prices of commercial and other policies in distorted economies.

He has also worked on applied general equilibrium model of trade policy. His continual interest in the economics of uncertainty is reflected in the articles he has published exploring the effect of various forms of uncertainty on savings, on the relationship between farm size and productivity in agriculture, and on tax evasion in a context of uncertain discovery of evasion on commercial policy. An original thinker, he has made notable contributions to the study of the relationship between poverty, undernutrition and malnutrition as also other issues in developmental economics.

He continues to take a lively interest in research on the economic development and policy reforms in India and in a recent series of papers, he has taken a critical look at the proposals to use trade policy instruments to enforce environmental and labour standards as well as human rights. The publishers had recently brought out his eight lectures on Indian economic reforms.

The book under review contains his selected papers including some of his classic theoretical writings ranging from optimising policies of rational individuals to the role of the state within the systems of economic structure. These papers cover a period of nearly 30 years.

The initial papers cover such diverse subjects like investment criteria and choice of technique of production, optimal savings in a two sector model of growth, choice between capital and labour mobility, a political-economy- theoretic model, representing quid pro quo foreign investment and welfare, comments on Prof. Romer's theory and articles championing the need for developing countries to participate in the GATT system.

An essay of current interest included in the book is the one on India's economic reforms where he traces the origins of post- Independence economic development strategy, the objectives and policy framework, the achievements and failures since Independence concluding with a detailed analysis of the Rao- Manmohan Singh reforms. He agrees with Bhagawati that extensive bureaucratic controls over production, investment and trade, an inward looking trade and foreign investment policy and a public sector going well beyond the conventional confines of public utilities and infrastructure, led to utter failure of development in India.

He lauds the reforms initiated by Dr. Manmohan Singh as systemic, conceived as a package of coordinated action in several areas, going well beyond liberalising the irksome controls at the margin and stressing the need for all-round reforms for maximum benefit. He considers the achievements in the post-reform period as impressive and suggests that there are some disquieting features in important areas representing the unfinished tasks, especially in such areas like foreign trade, industry, agriculture and infrastructure as also fiscal and monetary reforms. He cautions that without a considerable acceleration and deepening of reforms especially in areas like privatisation, labour and bankruptcy laws and infrastructural investments, India cannot hope to achieve the rapid and sustained growth needed to eliminate abject poverty and will be left behind by other Asian countries.

The papers on hunger, destitution, agricultural backwardness under semi-feudalism and development in the context of rapid population growth will all be read with keen interest. The one on nuclear power and economic development in India may appear dated as it was published before Pokhran II. His jibes at the U.K. for refusing to renounce nuclear weapons voluntarily make interesting reading: ``After all, the Government of the United Kingdom and its leaders have not shown much rationality in sending their fleet equipped with nuclear weapons and incurring avoidable loss of human life to defend the right of self-determination of 6,00,000 sheep and 2000 human beings in the Falkland Islands and allegedly, the principle that aggression should not be rewarded - a principle observed only in the breach by the U.K. in its long and violent colonial history.''

Prof. Srinivasan is a champion of India's pluralistic society, though he concedes that with many competing ideologies, India is placed at a disadvantage compared to China or Korea. He discounts the theory that a benevolent state can intervene in an optimal way to correct market failure. Instead, the state is seen to be pushed and pulled by lobbies and interest groups that are mostly interested in redistribution rather than growth and development. ``State intervention intended at best to improve the efficiency of resource allocation and channel it in socially desired directions and at worst creating fairly small dead weight losses due to distortions may instead end up diverting resources to a significant extent from production to rent seeking.''

The chapter on democracy, markets and development is of absorbing interest. In authoritarian Korea, labour unions were not allowed to operate while in democratic India, labour unions operate freely, stalling privatisation though they represent only a very small minority of the labour force employed in organised manufacturing. The overwhelming majority of the labour force in India is self-employed or employed as wage workers in agriculture, informal manufacturing and service sectors. Unionisation is irrelevant for such self-employed people and they will not be able to organise. India's labour laws are unrelated to the labour market realities and have created and sustained labour aristocracy in the organised manufacturing and public sectors with a disproportionate influence in politics.

A caveat may be entered here. Prof. Srinivasan harps on how a small labour force is stalling reforms. He has nothing to say about the rent seekers in industrial India cornering all the fruits of development both under the ``Licence permit raj'' and in the new era of reforms.

Indeed, in the final chapter, representing the conversation between him and his chosen disciple, Prof. N.S.S. Narayana, who is the editor of the book, he admits that directly unproductive profit seeking activities (DUP) and rent seeking models illuminate the analytics of some forms of corruption arising from the competition to obtain rents created by state intervention in the economy and also to influence public policy.

He does not elaborate though he shows his impatience with the Left for ``pampering the labour aristrocracy at the expense of the poor.'' Feudal landlords and captains of industry of all hues cannot ask for a far better champion of their interests.

Prof. Rudra commented that his writings on economic reforms sounded like a ``victory speech''. He is modest and denies having influenced Dr. Manmohan Singh. And this one on economic stability vs. political instability: ``Italy had political instability in the sense of rapid turnover of governments without it adversely affecting the economic performance. Of course, if the involvement of the state in the economy is not extensive, political instability is less likely to affect the economy adversely.''

Prof. Srinivasan is known for his skills in applied econometrics. The book contains proof of his skills with mathematical models and graphs. There is a comprehensive introduction by the editor running to 44 pages. The book should provoke thought among those interested in current economic theories of development.

T.C.A. RAMANUJAM

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