This is what Sen believed in 1959-
ECONOMIC planning is a little like a chameleon; it can have different colours.
This is false. Economic planning is economic- i.e. concerned with scarce resources. Either those resources actually exist or there is no planning- merely a foolish or fraudulent scheme or speculative bubble of some sort.
While the Soviet government plans the activities of the socialist economy of the USSR, the Nazi party also used to plan the economic operations of a fascist Germany.
And America and the UK and France and everybody else planned their re-armament and rationing and so forth.
Before advocating planning for the Indian economy, we should pause to inquire what is it that we are trying to recommend.
Sen didn't know that if a country has a budget, then it has an economic plan. It is committing itself to the provision of a set of goods and services as well as the acquisition or maintenance of a set of assets.
The issue, it seems to me, is not planning (that is only a by-product), but socialism.
One can have socialism without any government and thus no national budget and thus no economic plan.
Do we wish to have an economy with socialised means of production and an absence of property income?
Our wishes are irrelevant. Do we have the power to prevent people from exercising control over property? For India, the answer was no. The soldiers were the sons of agriculturists and other land owners. They would slaughter anyone who tried to take away their family land or cattle or other assets.
If we want socialism in this sense, then there must be state planning to replace the role the capitalist plays in a free enterprise economy.
That won't change anything. You can have a plan and then you can abandon the plan- declare a 'plan holiday'- because you ran out of money and nothing would change. Only if you can actually take property away from its owners can you get rid of 'capitalism' or 'feudalism' or whatever it is you are against.
Planning thus becomes a necessary condition for socialism,
Nonsense! Killing all property owners or intimidating them till they run away or claim to own nothing is the necessary condition for socialism. Planning has no effect whatsoever.
though socialism is not a necessary condition for planning.
Control over resources is a necessary condition for genuine planning- as opposed to building castles in Spain.
When we discuss here Why Planning, we shall really be discussing Why Socialism (and, hence, Why Socialist Planning).
What is the point of discussing anything so stupid? Sen and his pals had no power over resources. They might be roped in to help with some clerical work connected to making a Plan or a Budget but they had couldn't establish shit. Sen's own people had been chased away from their ancestral homes not too long ago. If they tried to grab land from peasants they would be killed.
In answering this question we must be careful to avoid two mistakes. Firstly, we should not (following the traditional presentation of political theory) assume that the question Why Socialism is synonymous with the query Why Not Capitalism.
There would be no harm in doing so. If X obtains and we want Y to replace it, a good place to start is to explain why X is shitty.
In India, while the choice is between socialistic and capitalistic modes of production in the industrial sector, that in agriculture is between socialistic production (of various degrees of socialisation from cooperative farms to state owned farms)
Sen thought there would be 'state owned farms' in India! There could be producer co-operatives for sugar or milk etc. and these co-operatives could be captured by the better off farmer but no Indian peasant was going to hand over his land without a fight.
and production modes that are, so to say, pre-capitalistic, namely peasant farming of various types.
Perhaps he means share-cropping. But share-croppers kick up a stink if you want them off your land. Sen hadn't noticed that he lived in a country where there was immense land hunger which is why family members so often ended up killing each other.
Thus the issue is not a simple one of capitalism versus socialism.
How is that a 'simple issue'? In 1959, the question was whether Socialism could attain affluence in the same manner that Post-War Capitalism had done. In particular, could the Soviet Union do 'creative destruction' and something better than 'catch up growth'? That is still an open question. China may be able to pull it off. Alternatively, the smartest young Chinese people may prefer to get jobs in the bureaucracy rather than risk trying to be the next Jack Ma.
Secondly, the criticism of the capitalistic mode of production should, to be valid in this context, be based on those aspects of it that are considered to be inevitable parts of the system and not those aspects that can be changed with a little reform of capitalism.
There is no such 'inevitable part'. Everything can be reformed. In particular, how capital was owned could change greatly. By 1959, you had the rise of the Institutional Investor. Your Pension fund and Insurance Company owned an increasing percentage of your Employer. Sen really knew nothing about either neo-classical or Marxist economics or what was happening in the world around him.
For example, it will be quite inappropriate to base the case for socialism on the much-discussed ground of the dishonesty of businessmen, or the corruption of the capitalists.
Why not? A businessman who does not pay his taxes gets sent to jail. His assets are taken over and sold so as to recover what he owes. It is perfectly proper for a Government to take over a cartel or natural monopoly being run by a crook who is disobeying the law.
If capitalists, as a class, are dishonest and have extra-territorial loyalties, it is conceivable that state control will improve things. Obviously, there may be a problem of corruption and incompetence but if the state is ruthless with its own minions, the outcome may be better.
While it is perfectly fair and very useful to criticise the economic system existing in India today for producing, say, adulterated products or financial swindling, the case for socialism cannot be based on these.
Yes it can. These are instances of 'market failure'. One remedy is to directly take over the market. Another is licensing. The industry may be subject to a levy to pay for its proper policing. Why did Sen not know this?
A fully developed bourgeois society operates, by and large, within its rules of business honesty, which are as yet not very developed in India.
But 'mechanism design'- i.e. penalties for bad actors and the reputational advantage of certification- can fix the underlying problem.
British owners of flour mills do not put soap flakes in flour, American druggists do not substitute dirty water for penicillin and French sellers of food do not use slow poisons cheaper than the food materials they resemble.
Because those countries have regulated industries and strong tort and other law. An industry benefits when this sort of market failure is tackled directly by the authorities. It ceases to be a repugnancy market. It gets better as a coordinating mechanism because there is higher trust.
If the criticism of Indian capitalism consisted only of these, that would not amount to an argument for socialism in any sense.
Yes it would. If Indians are utterly shit, then beat them and imprison them. Let the State take over all essential industries and keep beating the Indians who run them if they show any sign of poisoning their customers. Slavery and the whip are the only way to deal with an utterly bestial people. But once it is 'common knowledge' that dishonesty will be severely punished, a new cohort will show exemplary honesty. Then you can privatize industries so 'control rights' align with market incentives.
If anything, it is a stronger argument for the right-wing dictatorship of the type that exists now in Pakistan.
Why did Sen not know that businessmen who swindle or poison their clients go to jail even in liberal countries? Also, why mention Pakistan? Did Sen really think it was a paradise of honest toilers and puritanical entrepreneurs? It was obviously an American client using American funds to create a bubble of prosperity in some urban areas.
This point, though fairly obvious when one thinks about it, is worth making, since a number of defenders of socialist planning in India seem to think that this is the right way of proving their case.
If public servants are all virtuous and businessmen are all rogues, then only public provision will work. Otherwise the market will fail. Nobody will buy anything for fear of being cheated and even honest producers will go to the wall.
What then are the valid reasons for preferring socialist planning in India? One is tempted to say ‘industrialisation’.
Sen thought that by praying to Socialism, factories would start popping up all over the place. That's what Stalin did- right?
But is that the right way of putting the problem? After all, the UK and the USA developed industrially without socialistic planning, and even Marx recognised the creative role of capitalism in bringing modern technology to the fields of production.
But the British are nice. They are not poisoning and swindling everybody. Us Indians- being utterly shitty- must pray to Socialism to get a nice factory to swaddle in red tape.
It is sometimes maintained that the main factors responsible for the capitalistic economic development in the West ‘do not obtain at all in under-developed countries or obtain only partially.’
Because the people are shit.
This is not quite correct. Even in India the capitalist class produced a flourishing cotton textile industry, plenty of jute manufacturing and a sizeable steel industry. In Japan there has been a remarkable capitalistic development of modern industries.
Sen had heard of Japan's industrialization. Good for him.
To argue for Socialism on grounds that it is the only method of industrialisation is,
utterly mad. All industrialized countries were Capitalist except the Soviet Union which, under Stalin, exported primary products to by capital goods from America.
thus, not quite valid. One need not doubt that, given enough time,
enough money. Time was irrelevant. You can always hire foreign managers till you can train your own people.
the Indian bourgeoisie will be able to produce a modern industrialised economy in India and that will be quite in accordance with what socialists (at least of the Marxian school) should expect.
The crucial phrase, however, is ‘given enough time.’
Indian businessmen were better at running businesses than Indian bureaucrats. Capitalist development would have been faster than Socialist development. But the country would have gone for 'wage goods' and exploiting economies of scope and scale and export led growth on the basis of comparative advantage. All this is High School Economics.
Even if Indian industrial growth takes place at the same rate as that of Great Britain, it will take India more than a hundred years before it can call itself an industrialised economy in any significant sense.
Why should it grow at the same rate as Britain? It could do 'catch up growth' by picking 'low hanging fruit'. Just imitate what smart peeps are doing. Don't reinvent the wheel.
Are we content to go at this pace? This economic history of the modern world shows that in the planned socialist economies, growth is much faster than in the capitalistic countries,
provided the Government actually controls resources. Stalin and Mao could keep exporting food to get hard currency to pay for capital goods even when millions of their people were dying of starvation.
and this is what we should expect also from a comparison of the nature of a capitalistic economy and that of a socialistic one.
Capitalists can accumulate resources by selling stuff for money. Stalin and Mao could just grab stuff from the people and shoot them if they objected. India could do neither. It didn't have the resources to industrialize. Instead it just expanded the bureaucracy.
First, in a capitalistic economy, the results of the economic system are by-products of profit maximisation. The allocation of investment, the determination of prices, the choice of imports, all fit, by and large, into this basic pattern. Economic growth may (and, in fact, does) result in a capitalistic economy, but that too is a by-product.
If capitalists feel secure- sure. There could be growth. But if nutters keep talking about Socialism, Capitalists will prefer to bankrupt their enterprises so as to get their money out of the country in some illegal way.
Now whether the rate of growth will be high or not will depend upon the extent to which entrepreneurial interests coincide with the requirements of economic growth.
No. Economic growth will be high only where there is business confidence which is linked to ease of doing business, political stability, functioning courts, infrastructure etc.
Every time an entrepreneur chooses a more profitable machine, he may favourably affect economic growth; but every time he uses scarce economic resources to produce luxury goods, he affects economic growth adversely.
Quite false! Luxury goods are high value to weight. They are more profitable. Concentrating on luxuries means more rapid economic growth. There is a limit to the number of potatoes you can eat or the number of matchsticks people will buy.
In a socialistic economy, however, economic growth will not be a by-product but the object of the exercise and the whole economic machine can be, if necessary, geared to this.
But if you produce useless shite there will be negative growth.
Secondly, even if the capitalists ignore profits and try to maximise the rate of growth, they will find it difficult to achieve as much as a coordinating national planning organisation will.
Nonsense! Capitalists may want to maximize growth so as to gain economies of scope and scale and thus become a 'natural monopoly'. They can do this better than some bureaucratic machine staffed by nitwits.
Each entrepreneur lacks some knowledge of what the others are doing.
While bureaucrats don't know their arse from their elbow. Entrepreneurs have an incentive to get relevant information. Those who are bad at doing so go extinct.
Economic decisions are interrelated, and, for maximum economic efficiency, decisions in one field must be linked with those in others.
That's what the price mechanism is for.
An organised national planning authority, thus, has certain direct advantages over a collection of decision-taking entrepreneurs from the point of view of this objective.
Nope. The guy should have read a little Hayek.
The state can of course help even in a capitalistic economy by guarding (through taxation, subsidisation, licensing, etc.) the allocation of resources by private entrepreneurs. But this is possible only within strict limits.
Japan's MITI showed there were no fucking limits to this.
If interference is too great, incentives may be affected, as the bourgeois in India has often pointed out (correctly, in terms of the capitalistic mode of production and the bourgeois philosophy of action). So ‘guided capitalism’ may not in fact be as simple as one expects it to be.
Businessmen have no objection to being given soft loans, tax breaks, help with Export Credits and Marketing and so on.
The problem is reinforced by the fact that the relatively less far-sighted right-wingers will tend to produce new conservative parties or organisations whenever they feel that the government is interfering too much.
Help would be welcomed. Interference isn't help.
It is not difficult to quote examples of this from the recent political history of our country.
In view of all this it is not at all surprising that planned socialistic countries in the world have, on the whole, much faster rates of growth than capitalistic economies.
It is true that 'reconstruction' was rapid in places like Poland. But after that growth stalled.
Therefore, if economic growth and rapid industrialisation are our objectives, the choice is not difficult to make.
Unless you were Indian and you knew that the Second Plan had run out of money two years previously.
When Britain was industrialising herself, socialism was not a practical alternative, for the material conditions necessary for socialism (e.g., large-scale techniques of production) were absent. The early socialists were, thus, quite right in looking upon capitalism as necessary.
Later, socialists took over Coal and Steel and other commanding heights and turned them into a fucking money-pit. In the Seventies, the tax-payer began to rebel. Then came privatization. Bangladesh began privatizing in the early Eighties. It is now ahead of Sen's West Bengal though it was poorer at the time.
The situation is completely different today thanks to development of the material basis for socialistic production in the capitalistic countries (and also, more recently in the USSR).
Stalin could industrialize by selling grain and timber and fur and gold for hard currency. India couldn't. Deficit financing was simply inflationary. India could not afford Socialism
Thus a direct evolution towards a socialistic economy is, on the one hand, desirable in terms of the objective of rapid economic growth.
But the Second Plan had run out of money two years previously! Did Sen really not know this?
This, it seems to me, is the crucial point. We may of course add to this the much-discussed advantages of socialism in the shape of a better income-distribution,
in the Gulag?
a more fair allocation of economic sacrifice,
in the Lubyanka?
and so on. These points have been exhaustively discussed in the existing literature on the subject
there were plenty of exposes of Stalinism by 1959
so that we may satisfy ourselves by only referring to them.
But Sen does not refer to them. Socialism means Society gaining control over the country's productive resources. How was India to do that? It could have land ceilings- but this would just mean transfers of property or 'benami' transactions. It could nationalize industries but where would the working capital come from? I suppose, it could beg- but mendicancy isn't Marxism.
We may now come to the agrarian side of the picture. Some form of cooperation in rural areas seems to be necessary for economic efficiency of agriculture.
Some sort of state support for farmers- subsidized inputs, higher procurement prices etc- was needful. That's where the Second Plan fell down.
Irrigational activities can be performed with much greater ease by cooperatives;
if the Government pays for it- sure. Otherwise, the Canal administration remains in place.
better methods of cultivation can be used; even the application of chemical fertilisers will be much simpler if peasants are organised in some form of cooperatives.
Who would do the organizing? Where were these highly efficient and cooperative people supposed to come from so as to lead Indian peasants into the new utopia?
In providing employment for landless labourers, in organising food supply for the urban population and in integrating rural economic expansion with industrial development, the cooperative farms can play a very important part in India’s economic growth.
But they didn't did they?
We shall not enter here into the controversy on the right kind of cooperation for the Indian rural economy: there are genuine grounds for differences of opinion on the subject. For our purpose, however, it is sufficient to recognise that even in the rural areas, there should be some movement towards socialistic methods of production given the values assumed in the above discussion.
What values were those? Boo to Capitalism? Agriculture is about growing more food with less labor so that there is a surplus to feed the cities and to export. This required Government support for farmers such that they got cheaper inputs. The matter came down to committing resources to the best farmers not the worst ones. Socialism was no panacea. Actual resources were called for.
In the light of all this, we may now review the evolution of economic planning in India. In the first five year plan there was very little planning in any significant sense.
There was budgeting. That is all that can be usefully done.
The plan was more of an anthology of what individual enterprises wished to do. Very few industries were state owned and the control over the activities of private entrepreneurs was very loose indeed. The rural sector also did not undergo any very fundamental reorganisation.
India could not do 'reorganization'. It could not collectivize the land or force peasants into cooperatives.
The second plan brought into the picture a number of state owned industries, but this was very selective. State ownership was restricted almost exclusively to transport and to the production of producer goods: steel, fertilisers, irrigational works, electricity, locomotives, machine tools, etc. The production of consumer goods remained almost entirely in private hands. Centralised planning was applied to the former group and only indirect control to the latter.
The idea was to pump money into the public sector. But the money ran out very quickly. Financial Budgeting is more important than Centralized Planning. You need a back up plan for when the money runs out.
This dichotomy can, under certain circumstances, be quite useful, but in the context of our economy it is also a source of a number of problems. In the first place, the surplus available for public investment is small since the consumer goods industries, which are relatively more surplus yielding, are almost exclusively in the private sector.
Take them into the public sector and they become deficit yielding. Businessmen try to make profits and, if there is confidence that markets are growing, this leads to investment which leads to growth. The Government gets higher tax revenue which it can spend on public goods. You can't have a plan which assumes that resources have been socialized by magic. If you do, you run out of money.
In most socialist countries, the bulk of the investible surplus comes from the profits of public enterprises and not from taxation or borrowing.
Only if public enterprises actually make profits. One way to ensure this is to shoot managers who don't overproduce their quota in the back of the head.
In India the case is just the reverse of this. The surpluses in the consumer goods sector go to the private sector and it is considered to be uneconomic to raise the price of producer goods manufactured by the state on the ground that this will affect further production adversely.
If there are economies of scope and scale- this is perfectly reasonable. But if public sector enterprises are inefficient, or sustained only by cash transfers, no such economies will be available. They will become money pits.
While surplus, a considerable part of the surplus arising in the private sector is spent on consumption by the capitalists.
Because people who don't consume, won't produce unless you can shoot them in the back of the head.
Secondly, the existence of a big private sector makes national planning rather unorganised.
It makes it a work of speculative fiction which immediately runs out of money.
The state plans on behalf of the country what should be done, but this may or may not be carried out by the private sector depending on profit opportunities.
So there is no plan. There is just empty talk.
If we compare the targets and achievements of the Indian plans (particularly, the first), the point looks obvious enough. The divergences between the two are often very remarkable.
But 1957, it should have been obvious that Mahalanobis & Co knew zero about Economics or Commerce or the Law or anything at all.
Again, during 1956-57, when private capitalists went far above their schedule of imports, the system of import control could not prevent the jump in imports.
So, the system was crap not to say corrupt. State capacity was lacking. Planning was an exercise in make believe- like Nehru's foreign policy.
It is not sufficient to say that this was due to just inefficient administration. No administrative machinery can really control satisfactorily as big, as diffused and as powerful a group of private enterprises as we have in India.
In which case, admit that Socialism will have to wait till private enterprise has been crushed.
The issue before us is clear, the crossroads being not too far away. The ‘middle path’ seems to have run out. We have to make up our minds as to whether we really want a planned socialist economy.
It wasn't on the table because it would have involved starving millions while exporting rice and wheat and cotton and so forth in the manner of a Stalin or a Mao.
In the light of the above discussion, it can be said that given the economic values assumed here the case for a socialist economy is very strong.
This is typical of Sen's logic. If a thing is impossible, the case for it is very strong. If a thing is possible- e.g. letting the private sector concentrate on 'wage goods', then the case for it is very weak because Economists should have no truck with reality.
I realise that this choice will not be settled merely by the presentation of arguments on the two sides with a dispassionate assessment of the ends and means. It is a matter of social and political movements and will be influenced by the strength of the trade unions, the power of the capitalist class, the frustration and the determination of the middle classes, the organisation of the peasantry and such factors.
All of these were irrelevant. Everyone may want affluence and security. But nobody will get it unless a feasible- not a crazy- scheme is adopted.
It is nevertheless of some use to present the arguments as if the choice is to be made by debates and rational deliberations.
Sen still thinks 'debates and rational deliberation' matter. But he and his ilk were incapable of rationality.
It is particularly important for the defenders of socialism to avoid confusion between spurious and genuine arguments.
But Sen does not know which is which. A genuine argument for Social control of resources is that the population is as crooked as shit. People will recognize that this is true and submit to a punitive system of economic administration because the alternative is that everybody starves.
We understand that soldiers may run away or sell their guns to the enemy rather than risk their lives. That is why armies have military discipline of a punitive type.
Some of the widely used arguments for socialism in terms of the dishonesty, inefficiency and corruption of a capitalist economy only conceal the real argument for socialism and, more often than not, prepare the ground for a right-wing dictatorship.
Utterly false. The argument for a right-wing dictatorship is that crazy Leftists might take over by violence. Killing them requires a Fuhrer or Il Duce.
The basic socialistic (particularly Marxian) criticism of capitalism can be very easily mistaken for a rather petty version of historical criticism. The Italian Marxist leader Antonio Gramsci called the kind of criticism by the appropriate name of ‘economism’.
But Gramsci was ignorant and spent most of his time in jail. Worker control of factories is a bad idea. The factories collapse and the workers don't get paid.
‘Critical activity,’ wrote Gramsci describing this school of criticism, ‘is reduced to exposing tricks, discovering scandals, prying into the pockets of representative men’ (The Modern Prince, English translation, London, 1957, p. 158).
Mussolini's 'critical activity' was not confined to beating and incarcerating Gramscian nutters. Sad.
Not merely does this kind of criticism miss the real point. It also leads to a widespread feeling that all that is needed to make things satisfactory is a bunch of honest, moral men quite irrespective of their political ideals or social background.
But honest, moral, people are required to pull off any scheme whatsoever. A bunch of crooks will rob and kill each other. Nothing will be produced.
This is the kind of atmosphere in which fascism came to power in Italy, and the process has repeated itself in a number of countries since.
No. The kind of atmosphere were fascism came to power was always and only one where Commie nutters were marching in the streets and a strong leader was required to get guys in uniform to shoot them.
The defenders of socialism and supporters of planning must, therefore, be very careful about the arguments to support their case.
This is what happened. Socialism was to be based on 'free money' and bribes of one sort or another for everybody involved.
This is particularly important in the context of India, where the right-wing is likely to be increasingly less liberal than it has been in the past putting more emphasis on ‘efficiency’, ‘order’ and ‘honesty’.
Sen hates 'the right wing' because it favors efficiency (which is what economists aim at) and 'order' (as opposed to chaos) and 'honesty' (as opposed to lying your head off). His fear is that if Indians become less shitty they will be right-wing because they will want to do sensible things in an honest and above board manner. That's Fascism! Mussolini was very efficient and honest and orderly. Gramsci was crazy. That's why we must follow Gramsci. Come to think of it, Sen's best friend's wife- with whom he'd run away- was related to Gramsci. Adultery is dishonest. Thus it is Socialist! Running away from India with your best friend's wife is the best way you can contribute to building Socialism in India.
It is, therefore, just as important to dismiss the wrong arguments for socialist planning as it is to put forward the right ones.
Apparently, the right argument for Socialism is that the 'Right Wing' is efficient, honest and moral. We must embrace Socialism so as to be inefficient, dishonest and immoral.
Needless to say, Sen would go on to make his mark as a moral philosopher and as the 'Mother Theresa of Economics'.