This is a corrected version of this column.
Niranjan Rajadhyaksha asked in a recent column if India was being captured by oligarchic capitalism even as it talked of inclusive growth (Mint, 1 July). He was carrying forward an agenda set by economist Raghuram Rajan who said that if Russia is an oligarchy, India is no different. The list has swelled since. Exceptions are easier to count. It is time someone came up with an index of oligarchies and made money out of it.
However, it is important to remember one thing before we proceed further. When one talks of oligarchic capitalists, it should be inclusive enough (pun intended) to accommodate professionals such as lawyers, accountants and doctors who have erected anti-competitive barriers to protect their rents. For example, if there was free trade in medical practice, the pay of American doctors would come down to European levels and the cost of medical care would be dramatically reduced (“Deglobalisation in a multi-polar world”, Looking Glass, No. 2/2009).
Oligarchic capitalism within and across borders is not new. Whenever economic opportunities arise, for whatever reason, those who’re well-connected and well-endowed (with education, health, wealth and access to power) benefit the most. That’s why states end up creating welfare nets and progressive taxation to ensure that the gains trickle down. Naturally, this meets with resistance from the wealthy. Institutions of society and state are meant to counter this resistance. But even they must be held accountable, as they are not immune to temptations. There are wheels within wheels.
Globalization has created an international dimension to this issue. On the face of it, it has helped reduce differentials between nations, but it does so by facilitating interaction (trade and investment) between the elite internationally. Thus, globalization increases differentials within countries while it nominally reduces disparities between nations. Institutions that exist, at least on paper, at the national level do not exist at the international level, nor do they appear even remotely feasible now. This leads to the logical question that the article cited above poses: “Can the slowing internationalization of the economy make it easier to create equality within countries and relatively homogeneous regions? Is there, in other words, a connection between contraction and social contract?”
Evidence of such thinking arising in the developed world is not to be construed as a statement against poor nations but as a statement about how globalization was harnessed to drive wages down and profits up. But this thinking is disingenuous and dangerous. If rising global opportunities did not exactly lift all boats, a shrinking pool would do far less. Contraction would not necessarily lead to social contract, as it would invariably come with trade protectionism. If the withdrawal of the state were a screen for oligarchic interests to exploit the state, its enlargement would do away with the need for smokescreens.
Protectionism and the “sudden recollection of home countries by companies would end up being devices to access public funds”. For instance, the bailout of auto firms in the US is likely to end up restricting sourcing of components and parts from non-US suppliers. Developing nations should strengthen their World Trade Organization presence, both quantitatively and qualitatively. They must keep hammering away at the inconsistencies and hypocrisies of developed nations at all international forums—physical, print and electronic. Offshoring software development unleashed technology and productivity booms and entrepreneurialism in the US in the 1990s. Incidentally, offshoring manufacturing jobs brought about excess consumption, debt, credit and housing booms and busts.
Beyond a point, developing nations cannot counter the contraction of internationalization on the part of the developed world. But they can set an example by resisting the temptation to accumulate power in the hands of the state in the guise of responding to the global economic crisis. Of course, this is easier said than done.
Rajadhyaksha’s column offers a pessimistic prognosis on whether developing countries would move from “limited access orders” to “open access orders”. Very few countries have done so and, worse, countries routinely regress. The awareness of that risk should help redouble efforts to enlarge open access.
To start with, it is time to shed economic reforms and embrace governance reforms. Economic reforms have been mostly about the expansion of consumption and production choices of affordable goods. They have not been about expansion or facilitation of essential services for the larger public. The government made a good beginning with its promises in the President’s speech to Parliament a month ago. Paragraph 32 contained many welcome initiatives to make the functioning of the government more transparent and accountable. Prioritization of their implementation would be a good signal of the government’s seriousness of commitment to those promises.
Ultimately, good people should step into public service more often and in larger numbers than now. When the system co-opts them, others should take their place. That is how limited access orders can become open access orders.
V. Anantha Nageswaran is chief investment officer for an international wealth manager. These are his personal views. Your comments are welcome at firstname.lastname@example.org