Shenoy on Galbraith

Print.in has reproduced an excellent article by B.R Shenoy which was first published in 1963 

Professor JK Galbraith has made planning a theme of his weighty pronouncements more than once during his tour round India.

Kennedy wanted to keep Galbraith at arms length which is why he sent him to India. If stupid Leftist policies are to be implemented somewhere- let it happen somewhere far far away.  

At a press conference in Ahmedabad, commenting on the fears expressed in some quarters in India that the present tempo of our planning might lead to an authoritarian regime, he observed that “lack of planning” in underdeveloped economies “carried a greater risk of leading to authoritarian regimes than proper planning”.

Authoritarianism costs money. So does opposing authoritarianism. Preventing people from making money means there will be less effective opposition to authoritarianism. The evidence for this was clear. Highly authoritarian regimes- Stalin's Soviet Union, Nazi Germany, Mao's China- were planned 'command' economies. Democratic or liberal countries were characterised by free enterprise though there might be an element of 'indicative planning' or a Ministry which worked closely with the private sector so as to boost exports in specific fields.  

He utterly ridiculed these fears, saying that “whenever somebody wants to denounce something, he

mentions something which everybody knows to be true. Moreover, there already has to be significant authoritarianism- e.g. the Government reserving a specific industry for the Public Sector- before there can be much in the way of Planning. India was already authoritarian. What was not obvious was that it would become Dynastic.  

says it is likely to lead to authoritarianism.” In addition to planning, he continued, public ownership,

i.e. 'Authority' (that is the Government) owning and controlling an industry- which is, by definition, authoritarian 

agricultural price support,

which isn't. It is an intervention to prevent a particular type of market failure so as to reduce uncertainty and price volatility. Farmers have votes. They can use those votes to get the Government to solve a 'collective action problem'. This has all sorts of positive externality effects from which the economy benefits.  

trade unions

they are a check on authoritarianism. That's why Dictators don't like them. Moreover, Trade Unions can finance political parties- e.g. the UAW supporting Kennedy's Democratic Party.  

and large corporations had been accused, by different sections of the people, at different times, as precursors of authoritarianism.

Leftists might mutter against 'large corporations' but they might also believe that Madison Avenue is brainwashing the masses. Proles don't really want nice shiny stuff. Their deepest desire is to kill and eat the rich.  

But their cry of “wolf” had proved false alarms.

Very true. Stalin was actually a very nice guy. He gave kulaks lots of kisses and cuddles.  

It was safe enough guarantee against this calamity, if the “spirit of democracy is deeply implanted in the mind of peoples and in their institutions”.

Sadly, spirit of democracy might get drunk and have a three way with the spirit of Fascism and the spirit of Communism.  

The logical basis of Prof. Galbraith’s conviction, which is widely shared in India, is simple. A country facing the problem of lifting itself from poverty and of providing a better life for its people would be condemned to frustration without planning.

Everybody who has a budget makes plans. The question was whether the Government should use its authority such that only its plan, nobody else's, is implemented.  

From the “discontent” born of the tyranny of unrelieved poverty, they might fall an easy prey to the promises of Communism.

i.e. believing in the magical efficacy of five year plans.  

This danger can be averted by a “proper planning of its resources”.

The danger of Communism can be averted by becoming Communist in all but name.  

It will at once be agreed that the greatest single problem before underdeveloped countries is their abject poverty.

i.e. low productivity. How can productivity rise? The answer is to let those whose productivity rises gain affluence. The less productive will notice this and seek to imitate them. This is 'Tardean mimetics'. It is what drives growth.  

Everything hangs on its eradication. Failure to tackle it effectively might engender social and political instability, though the fear in this regard is often unduly overdrawn.

India had already discovered that Plans don't matter. Budgets do. If you run out of money, you have to give up your Plan. A Society can be stable though a goodly proportion of the population starves to death every few years.  China, at around this time, witnessed the greatest famine in history. It had a planned economy.

The question is whether this central objective — the eradication of poverty — may be best and most speedily achieved through planning as we have seen it in action during the past decade; and as Prof. Galbraith, a devotee of Indian planning, seems to understands the term.

The answer was 'no. Don't be silly. Indian planning is about increasing the power of the PMO in Delhi and cutting the industrialists in the littoral Cities down to size.  

The answer centres round the problem of maximising output from our meagre resources. The faster the growth of output, the sooner is poverty liquidated.

Productivity had to rise. Markets are a cheap way to solve coordination problems. However, Government intervention can improve their efficiency where 'external effects' or other sources of market failure arise. But this can be done quite cheaply.  

Any programme for maximising output cannot ignore the prevailing, extremely complex, pattern of production of the Indian economy. Fully 50 per cent of the national product is from agriculture and about 70 per cent of the population lives on it.

Moreover, the rising political power of the agricultural 'dominant castes' meant that 'collectivization' was off the table. 

Agricultural production is in the hands of 67 million independent farmers scattered round the country, the average holding per family being 5.5 acres. Cotton textiles comprise about 38 per cent of industrial production. Textile output ensues from 478 mills, 80,000 to 90,000 powerlooms and 2 million handlooms. The remaining sectors, too, comprise tens of millions of independent production units. Save and except under the Communist steam-roller, this production set-up cannot change overnight, so to speak.

This was the crux of the matter. In Russia and China, the Communist Party had waded through an ocean of blood to establish their absolute power. The peasants had been demoralized and defeated by collectivization and the famines this directly gave rise to. Both could rely on 'disincentives'- e.g. not getting shot in the back of the head or being shipped off to a Gulag- rather than 'incentives' (i.e. getting nicer food to eat). India could not take this road. The soldier was the son of the kulak. He wouldn't slit the throat of his own Mummy or Daddy.  

Two policy compulsions emerge from this set-up, if we must accelerate output.

The target growth rate was 5.6 percent. The outcome was 2.4 percent.  

First, agriculture, textiles and the basic consumer goods industries, which constitute the bulk of productive activity, must receive first claim on productive resources. Secondly, centralised planning—in the sense of state control over the allocation of resources—is not practical, though simpleton administrators might think otherwise. Centralised planning can only produce chaos and retard the hands of progress, when the planners have to deal with tens of millions of production units scattered round a sub-continent.

Also wars or droughts could cause a resource crunch and the abandonment of the Plan.  

We have violated both policy compulsions in the name of planning. The Public Sector will appropriate, in the Third Plan, 65 per cent of investment resources. The percentage was 57 in the Second Plan. These resources will go to heavy industries, mammoth river valley projects and costly social overheads. Large parts of the remaining resources would also be forced into heavy industries and industries producing intermediate and other non-consumer goods, through exercise of the control over capital issues, import licensing, permits for raw materials, concessions and quotas.

This leaves little of the productive resources for use in agriculture and for producing cloth and the other consumer needs of the masses. Resources drawn into heavy industries would add to the national product, but an order of 14 per cent of their value;

i.e. the capital-output ratio was much higher.  

they would add an order of 36 per cent if employed in consumer goods industries and of 65 per cent if employed in agriculture. The outcome of our developing heavy industries at the expense of consumer goods industries, and of developing both at the expense of agriculture, has been two-fold: Indian national income has risen during the past decade at an annual rate of about 3.5 per cent; and the consumption of food and cloth by the masses has declined, or is semi-stagnant.

It would decline yet further.  

In the absence of planning-forced diversion of the largest bulk of Plan finance into wasteful projects-productive resources would flow into channels where they yield the highest output, through the usual market mechanism. Two results would ensue from this, simultaneously: first, national income might increase at an annual rate of 8 to 10 per cent;

In other words, Indians would eat more and have nice clothes. Mahatma Gandhi's ghost would not be pleased.  

secondly, output of the basic consumer needs of the masses—principally, food and cloth—would go up simultaneously with the national product, as investments in these directions yield the highest returns and as economic activity would now be controlled and directed by the consumer, not by the Planning Commission.

Also, India would be exporting 'wage-goods'. But this means some Indians who didn't even have a PhD from Cambridge would become rich. They would chew paan and vote for politicians who didn't spick Inglis gud. This would be a great calamity for the country.  

This is not to say that, under the free-market system and the sovereignty of the consumer, there is no room for any planning. Orderly progress is inconceivable without planning. In the private sector, then, planning will be done by the millions of individual production units; in the Public Sector, by the state. The Public Sector will be confined to activities which cannot be effectively undertaken by private enterprise, e.g., the provision of an honest rupee, the rule of law, basic transport and communications, standardisation of weights and measures, education and public health. In particular, the state should not stray into trade and industry, or interfere with the distribution of productive resources. To do so would be to upset the planning of millions of production units, to the detriment of the national product and social justice, causing untold human suffering in the Indian context of extreme poverty.

Poverty is good. If Indians aren't starving to death, they may become Nationalistic or 'Communal'.  Also, they may discover that Gandhi, Nehru, Azad etc. had shit for brains. 

Thus, the “discontent”, and possible explosion, which must ensue from the pursuit of the prevailing economic and social policies, carries the very “risks of authoritarianism”, which Prof. Galbraith thinks we would avert through the so-called “proper planning of our resources”.

In other words, adopting Communist tools makes you more and more Communist. It doesn't keep you safe from Communist totalitarianism and its associated personality cults.  

These risks cannot be averted with greater certainty than through planning for the free market under the banner of consumer sovereignty.

In other words, if you don't want to end up a Communist shithole, don't do stupid Commie shite.  

Planning for the free market has yielded blinding economic and social dividends wherever it has been given a chance. In the post-war world, it produced the first miracle in West Germany. It then spread, with as good or better results, to the other EEC countries, Israel,

not at that time 

Japan,

India needed an MITI, not a fucking Planning Commission 

Hong Kong, Spain and, latterly, the Philippines. The eagerness of UK to join the EEC, even risking severance from its political kith and kin, is evidence of the vitality of the new movement.

Trade creation was important. Trade diversion (e.g. 'Imperial Preference') or import substitution had been tried and found wanting.  

News of this powerful reaction away from statism has not reached New Delhi yet; nor the Indian universities generally, where economists still fondly cherish outmoded dirigiste doctrines, fancying them to be tenets of the nuclear era. The Galbraiths, Millikans, Rostows and Wards, not to mention the pronounced left-wingers like the Baloghs, Bettelheims, Langes and Robinsons—all sincere theorists and hot favourites of our Government–through their expositions, probably stand in the way of our properly appreciating the tremendous potentialities of planning for the free market under the aegis of consumer sovereignty. The illicit beneficiaries of planning, now the power behind the throne, who, too, are champions of mass prosperity, are another great hurdle to be overcome. But neither economic nor social salvation is possible except through policies of economic and social freedom.

The task before the policy reformer is indeed overwhelming. The situation provokes the prayer: “Good Lord, protect me from my friend; against mine enemies I can defend myself.”

Amen.