If you were born in India in the 1950s through the 70s, you grew up believing India invented the “mixed economy.” We were fed golden tales about how the commanding heights of our industry were not mortgaged to any seth ji (capitalist) but to a cuddly and “altruistic” state. It’s only when our economy blew up in the early 90s that we realised how hopelessly “mixed up” we were!
But unknown to most of us, the principles of a “mixed economy” had taken shape in the United Kingdom in the 1930s/40s, within the thinking echelons of the British Labour Party.
The philosophy took strong roots in Europe in the post-war years, but was largely defined as a “form of capitalism where most industries are privately owned with only a minority of public utilities and essential services under public ownership… governments provide environmental protection, maintenance of employment standards, a standardised welfare state, and maintenance of competition.”
Essentially, such a mixed economy envisaged a predominantly free market system where the government intervened via rational regulation to ensure fair play, social justice, and competition.
Treacherous Trinity of Government Dominance, Ownership and Control
But in India, government dominance and ownership became the hallmark of what we called a “mixed economy.” It descended into a wealth-destroying form of state capitalism where the government assumed monopolistic control of operations ranging from transportation, banking, telecoms, hospitality, steel, coal, armaments, healthcare, universities, and what not.
Instead of evolving into an enlightened welfare state, we got tripped and trapped into a nowhere economy, neither a well-regulated free market nor a Soviet-style command and control structure.
Most discordantly, agriculture, our biggest employer, remained totally in private hands, unreformed and chained to medievalism, outside the pale of even the “mixed up” economy.
The most renowned economists have described this policy muddle as the primary villain that produced “both the slow growth of socialism and the inequalities of capitalism.” In short, the worst of both worlds; no wonder our 1991 bankruptcy was foretold and inevitable.
Wasting the 1991 Crisis
Unfortunately, we wasted the crisis of 1991 by not ripping up the mixed economy and nixing its contradictions. Instead, we chose the path of “liberalisation,” which essentially opened up trade, industry and investment to the world. While it was a productive deconstruction, and undoubtedly successful in unleashing growth impulses, it wasn’t quite the revolutionary change it was made out to be.
It did propel India onto a much higher plane, but we are now plateauing at 7-8 percent, unable to clear the 10 percent threshold that pulled China out of grinding poverty (that China had once shared with us).
As we get ready to elect a new government in less than 18 months, what should we expect from them? Should they do more of the same, or craft a “post liberalisation” vision of India’s economy?
I hope the next government decisively sheds the incrementalism of the past seven decades and creates an economic model that is neither Left nor Right, neither capitalist nor socialist nor mixed, but one that is uniquely suited to our current station; which grapples with and overcomes today’s political constraints and realities; one that is not half-way or half-hearted, but courageously goes through and UN-MIXES our economy. Yes, UN-MIXES it!
An UN-MIXED Economy: To Make India Rich Again
To begin with, we must stop hero worshipping 1991’s “revolutionary reforms.” I readily concede these trade, industry and investment policy changes were hugely positive (even radical) in unshackling us from the command and control apparatus of the 1970s. But the gear only shifted from 1st to 2nd, while the chasis of India’s economic motor remained split, mixed and wobbly between private industry and a domineering government.
So when we preen about the “dramatic transformation unleashed by the revolutionary economic reforms of 1991,” I find it difficult to suppress a sardonic grin. Look where we have reached:
- 300 million citizens, our entire population at independence, still continue to live below the poverty line; that is, they don’t have enough money to buy the required number of daily food calories, putting us at an abysmal 100/119 in the Global Hunger Index, behind, hold your breath, North Korea and war-ravaged Iraq!
- Our public sector companies have inflicted untold misery on our poor – just the top five losers have sucked out Rs 1 lakh crore over 10 years
- For all our glorious “reforms,” we are at 131/188 on UNDP’s Human Development Index – half of our class 5 students would flunk a class 2 reading test
I can go on and on with this litany, but that would be as wasteful as the mess created by our mixed economy. To reiterate, the time has come to UN-MIX it.
An UN-MIXED Economy: More Government, Total Entrepreneurship
No, it’s not a typo. Usually, all free-market prescriptions begin with “roll back the state, free up entrepreneurial energy”. Instead, I am asking for “more government”, but in only five areas.
- Education – treble your spend, upgrade teaching/measurement skills and effectively administer a massive school voucher programme
- Health – treble your spend, put massive focus on TB, malaria and HIV, and effectively implement a universal health insurance programme for the poor
- Treble your spend on rural and agriculture infrastructure; wherever possible, spin off developed assets into local private management and plough back the sales proceeds
- Set up urban infrastructure on a war footing, but sell completed assets to private management, redeploying the proceeds in newer assets
- Invest massively in modernising the architecture of state governance
That’s it. Once our state has become much bigger and invested all its energy and resources in these five areas, it should shrink completely from all areas of private economic activity, where markets can work and be regulated efficiently. Just don’t be half-hearted about this pull out.
That then is the mantra of an UN-MIXED economy: More government, total entrepreneurship.
India’s economic salvation shall lie in such a separation of the state and entrepreneur. Else, we shall muddle along and stay hopelessly moored to middling outcomes.