Singapore is widely admired for its remarkable achievement, after its independence in 1965, of becoming the first developed country in Asia after Japan, fulfilling Lee Kuan Yew’s audacious ambition. The inaugural lecture of NITI Aayog’s Transforming India lecture series was delivered in New Delhi on 26 August, by the deputy prime minister of Singapore, Tharman Shanmugaratnam, to cabinet ministers, chief ministers of states, and senior government officials. There is much to learn from Singapore.
In his opening speech, Prime Minister Narendra Modi explained his slogan of ‘Reform, Perform, and Transform’. We must first reform our ideas and our institutions, he said, from which will follow performance through plans and budgets that will transform the economy and society. Modi has closed down the Planning Commission, which was focused on plans and budgets, and replaced it with the NITI Aayog to create collaborative learning and cooperative implementation.
The Indian state has many challenges. A major one is to ensure that economic growth creates jobs much faster than it has so far. A large, youthful population can provide a ‘demographic dividend’ to the economy. It can also create huge societal and political problems if there are not enough jobs. Another looming challenge is to improve the ability of the state to perform its functions and provide services to citizens more efficiently.
The principal theme of Shanmugaratnam’s lecture was that nations progress when they learn faster than others. Enterprises in the nation must learn to do things they do not know how to do, and learn to do them better than enterprises elsewhere and thus become globally competitive. People must learn, and be life-long learners. Above all, the government must learn how to reform society and the economy and create an ecosystem for faster learning by enterprises, institutions and people.
He contrasted the progress of India and China, similarly large countries, with comparable per capita incomes in the 1970s. Chinese incomes are now two-and-a-half times higher than in India. Clearly, China’s government has been a faster learner than India’s. So have Chinese enterprises. In 1990, India’s capital goods sector was comparable in size to China’s, and Indian firms seemed to have better technology. Now, China’s capital goods sector is 50 times the size of India’s and is exporting billions of dollars worth of machinery and capital goods to India.
Concepts of organizational learning are creeping into mainstream economics too. In their book, Creating a Learning Society: A New Approach to Growth, Development, and Social Progress, Joseph Stiglitz and Bruce Greenwald make the case that economic progress is a process of learning.
Stiglitz and Greenwald’s argument can be summarized in three points. One, they say that economics has become too narrow in its attempt to be precise. Economic models leave out the dynamic sides of societies—institutional capabilities and innovation, which are their primary, albeit unquantifiable, sources of development. The second point is, the essence of social development and economic growth is a process of learning. Nations learn to do what they could not do before. And if they learn faster than others, they develop faster and grow faster too. Thus Japan, then Taiwan, South Korea, Singapore, and now China have swept ahead of others.
Their third point is that the process of ‘industrialization’ has been the principal cause of growth of economies and improvement of living standards. When societies learnt to make things they could not make before, and developed more efficient processes for making these new things, economic growth took off exponentially. Thus, incomes and living standards have improved much more in the past 200 years, by ‘industrialization’, than they had in the previous 2,000 years.
Several other economists—Dani Rodrik, Ricardo Hausmann and Ha Joon-Chang, to name a few—have recently argued that nations grew their industrial sectors by learning faster than their competitors at the time. This explains Japan’s, Korea’s and China’s progress in recent times, and Germany’s, the UK’s and US’s before that. Ergo, a country’s industrial policy must principally be a process to stimulate institutional learning in firms and state institutions and their interactions. This is as opposed to industrial policy as a process of allocating resources and permissions—which was the orientation of India’s planners until the 1980s—or industrial policy as a process of ‘picking winners’, which is becoming more difficult when industries are being transformed by technology and globalization.
The Indian state has been a slow learner compared to Singapore and China. Evidence suggests it may also be slower than other Asian developing states such as Vietnam and Indonesia. It must learn to learn faster.
A process of faster learning as the paradigm for industrial policy was explained in India’s 12th, swan-song Five-Year Plan, to develop an industrial strategy to generate more jobs. Rodrik and Hausmann were consulted as well as experts from South Korea, Japan, and Germany. The approach to collaborative learning and cooperative implementation that emerged was not picked up by the United Progressive Alliance government before its term ended. Fortunately, Modi has taken it up in the charter of the NITI Aayog itself. Both Modi’s remarks at the inaugural lecture for transforming India, as well as the theme of the brilliant lecture by Shanmugaratnam give hope that Modi is determined to implement it.