Is Joseph Stiglitz a socialist? To many, the question may signify an obsession with an individual, however talented he might be. But there’s another aspect to the 2001 economics Nobel Prize winner: He is a bearer of economic fashions, fashions that are far more pernicious than those of the Parisian variety. He has for long advocated greater state intervention in the economy.
In an interview to Mint (published on Wednesday) he reiterated this once again. He argued for social protection of workers and those at the margins of the market. The flavour of his arguments was overwhelmingly Keynesian. One might say that represent a statist argument. That would be a wrong conclusion.
The fact is that all his arguments are based on trying to minimize the distortions and informational imperfections in a market economy. The question, as he puts it, is not that of state versus the market, but what should the state do and why. That is something that has special relevance in the Indian context. Our policymakers are losing sight of that distinction once again, harking back to the pre-1991 reform days.
More than the scale of government spending, it’s the quality of that spending that’s in grave doubt. Building roads, providing “employment” in rural areas under an open-ended programme that has few links to the wider economy and state-sponsored insurance for unorganized sector workers are only a shade away from the kind of bureaucratic tax and spend, command economy that landed India in a balance of payments quagmire in 1991.
Our policymakers are following only the easier half of the Stiglitz prescription. While public spending may have a rationale, but what is being done to generate the money needed for such programmes? Greater government intervention in the economy is fine, but what is being done to prevent the entrenchment of special interests?
Perhaps the problem is that we continue to see economic questions in a binary, either/ or, manner. Analysing the middle ground where the government has an appropriate role has never been our forte. A careful evaluation of that middle ground will be a prerequisite for our continued economic growth.
Has India learnt the wrong lessons from Joseph Stiglitz? Tell us at email@example.com