or if not Power, then the post of Prime Minister, was paved by Ian Little, under whom he had done his PhD. Little was critical of Welfare Economics and had independently arrived at something like Lipsey & Lancaster's Second Best Theorem. But he was a silly man. He thought we could not know the size of a cake till we knew the size of its slices. But it is much easier to get an idea of the size of the cake then to keep track of the slices. Also, there are no fucking slices. The cake is eaten as it is produced.
Being Little's protege would not have helped Manmohan if Rosenstein-Rodan hadn't invited Little to join the MIT India Project. Little went to India in 1958 and became a friend of Pitambar Pant. Along with Rosen & Swan, Little contributed to the shitty Third Plan. Still, spending 9 months in India is enough to turn a White man into a 'Development Economist' more particularly if the White man is an old Etonian and as posh as fuck.
Little had fallen out with the Planning Commission by 1965- about a year after Manmohan's first book appeared. This was because Little thought a proposed electricity plant in Bhopal was not economic when looked at from the point of view of world, not domestic, prices. This was silly. If Indians had access to world prices- e.g. could buy a Japanese car rather than wait ten years for an overpriced, shitty, Ambassador car- and if there were free capital flows then parts of India would have been growing at ten percent. Sadly, the country was ruled by people from shitty parts of India where productivity could only grow in industries like kidnapping, raping, looting, and being as corrupt as fuck.
Meanwhile Manmohan's book was about how bureaucrats in Delhi could pretend to be doing something to boost exports and thus gain a bit of hard currency. In other words, there was no need for internal reform. Once Little had come out as as devotee of the South Korea/Taiwan 'export led growth' model, it was useful to have a pupil of his to say 'this isn't practical for us. Little is my Guru and so I won't pick holes in his argument. But, I am Indian. He isn't. We have to do things the Indian way.' Manmohan was sent to UNCTAD in Geneva. Working with Prebisch- whom the Indians considered a Lefty 'Third Worldist'- burnished his credentials as an International Trade maven. But it was because he didn't join Bhagwati & Padma Desai in pushing for thoroughgoing liberalization, that New Delhi found him useful. Moreover, unlike Minhas, he wasn't the sort to resign from the Planning Commission to protest a piece of Socialist idiocy- e.g. the Government taking over the grain trade- and had no personality to speak off. Thus he could be relied upon. Promoting him sent a signal to the younger generation that sycophancy and keeping your head down was the way to get the big bungalow and the chauffer driven car.
Little had persuaded the Indian Planning Commission to set up a Project Appraisal Division- which as Amartya Sen and his best friend from Shantiniketan soon saw was useless because 'he pays the piper' doesn't just call the tune, he also pays for the tune to be appraised. Anyone can appraise anything as excellent or shitty depending on who is paying them. Staying away from that stupidity was good for Manmohan because it meant he didn't sign off on some Dam or Mining project which the Green nutters would turn against and excoriate him for supporting.
Manmohan may have been Little's student. He may have worked with Prebisch. He may have been a Professor at the D.S.E. But, he could never be a great economist because he was Punjabi. In other words, he wasn't as stupid as shit. He saw that Trade policy could be liberalized and actually did so. You may say- Ajith Singh or Montek or some one else would have been just as effective. But Manmohan was trusted by the Left. Moreover, he had all the facts and figures at his finger tips. Because he had zero personality, there could be no personality clash. He did have political ambition and tried to get elected to the Lok Sabha. It is said Congress workers prevented this outcome. But this also meant that Sonia could make him PM without fearing he would get too big for his boots the way Pranab or Narasimha had done. Later Manmohan did try to push for further reform (he also tried to curb foreign funded NGOs from hindering Indian growth) but Sonia and Rahul cut him off at the legs. Thus the 'prone' Minister was left to impotently preside over massive corruption.
Turning back to Little- who died a dozen years ago at the age of 93- one might speak of a 'Manmohan criteria'- similar to the Hicks-Kaldor criterion and Little's more equity focused Criterion. This is the idea that if winners could potentially compensate losers, then welfare increases. Manmohan's life in Indian economic policy gives us something better. If Government revenue goes up sustainably, the Government should do it. But to stay in power, the Government has to bribe voters. The question is, what happens if the taxed sector rebels? Experience shows that a country can go off the fiscal cliff (which entails entitlement collapse) while the productive sector insulates itself and minimizes the extent to which it can be squeezed.
Little had proposed a two-item check list for a change to count as a welfare improvement.
First, it would produce a not-unfavourable redistribution of income. In other words if a million hand spinners of yarn lose out while 10,000 mill workers gain income and the Millowner becomes rich and starts investing in more and more such industries, then Little would forbid it. Had England done so in the eighteenth century it would now be poorer than India.
Second, the losers from the change could not bribe the gainers to vote against it.
In other words, Coase's theorem can't work its magic. If I decide to do something with my apartment which the Co-op board permits and this very severely impacts one neighbour who is prepared to pay other members to vote against it then Little won't permit it. Consider the two person case. Every vote is a tie unless money changes hands.
I propose a Manmohan criteria for India
First, does the change raise productivity for any person without reducing it for any other? If so, permit it because it will worsen Income distribution. This will cause a 'mimetic effect' such that more and more people switch to the more productive technique. Inequality is a good thing because only the absolute standard of living matters.
Second, buy the votes of the poor iff this is the only way to permit productivity to rise. The problem here is that productivity is distributed by a Pareto 'power' law- i.e. a small percentile is responsible for a lot of total productivity- and that percentile may be more mobile between jurisdictions or otherwise able to evade or avoid taxation. This means transfers can only be financed by the emerging middle class. What happens if it turns against the system? If I refuse to pay my taxes, I can be sent to jail. If one hundred million refuse to pay their taxes, nothing can be done about it. The Government goes off a fiscal cliff. There is entitlement collapse. Hyper-inflation is likely. But, the same thing happens if more and more people disintermediate the 'white' economy. Demonetization can't affect crypto. I suppose this is happening already and will snowball over the remainder of the decade. Then there is the issue of transfers between States. If even one State figures out a way to avoid being a net contributor, it will have a lower effective tax rate and thus become more attractive for doing business. Thus, other States will have to follow suit, for purely fiscal reasons.
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