‘Reform’ Magic

Can 1.7 Billion Dollars Imagine Wrong?

Justin Podur

It's a daunting task to critique a *book by a billionaire. JK Galbraith once wrote that conventional wisdom has it that wealth is correlated with intelligence. By that logic, the author whose book this writer is reviewing, Infosys founder (net worth $1.7 billion) Nandan Nilekani is exponentially smarter than the reviewer.

But because he's a billionaire who put his ideas out there to be discussed (imagine the Koch brothers doing the same), and formed his opinions after talking to a lot of people, well informed people it's worth discussing them. Nilekani now works for the government, mainly trying to implement one of the ideas he discussed in the book—the idea of a single ID number for every Indian citizen. His book looks to the future, contains some interesting social science, and is both intended to, and has, influence on public policy. It is, consequently, worth looking at in some detail.

Nilekani's book is divided into four sections, to organize a total of 18 "ideas for the new century": ideas that have arrived, ideas in progress, ideas in battle, ideas to anticipate. But for this review, there is different organization of Nilekani's ideas: the context of social change, administration, economics, and politics, This writer reviews his ideas and conclusions from social science- including demographics, urban issues, and language—to be very interesting. His ideas about administration, including schools and universities, infrastructure, energy, environment, and technology—are also, in many areas, interesting and difficult to object to.

In economics, however, Nilekani creates a dichotomy between 'old' ideas, associated with socialism, and 'new' ideas, associated with what he calls 'reform', and 'the market'. Because every chapter starts with the legacies of British colonialism, the claim that socialism, which is from the last century, is 'old', and the market, which came to India with British colonialism hundreds of years before, is 'new', is a difficult claim to sustain. Are so many of India's economic problems really traceable to socialism?

In politics, Nilekani believes that prosperity and sound administration transcend politics and can help overcome some of the more petty political fights and deadlocks. But many of India's, and the region's, most serious problems—of struggles over land, insurgencies, international relations—did not make it into the book. Even in the most optimistic and prosperous scenario, these problems will not disappear without attention to justice.

In chapters on demographics and urbanization, Nilekani points out that some of India's biggest changes have come not by design, but as unintended consequences. Pre-industrial societies are characterized by very high birth rates and very high death rates. Advances in food production, medicine, and hygiene lower death rates first, and birth rates fall later due to social advances in women's status. The result in the West was several generations of demographic boom, and India is experiencing such a boom today. In the 20th century, India and China tried to reduce their populations, China by using authoritarian power to successfully impose a one-child policy, India by instituting a disastrous, coercive involuntary sterilization program that discredited family planning for generations. As a result, as both the West and China have aging populations, and India has an extraordinarily large working-age population, which presents unique challenges and opportunities. Nilekani is optimistic about these demographics, and argues that this large, demographically young population could make a positive difference for India, and in the world.

India's urbanization too is less a matter of deliberate policy and more a case of policy trying, (and often failing) to keep up with change on the ground. Rural poverty creates a massive push factor, and people go to the cities in search of work and income, a chance at a different life, and a chance to escape oppressive traditions. Because of this ongoing trend, which has hundreds of millions of people on the move, Indians must revise their earlier belief that India's life is in its villages alone, and try to create a vision for urban India. Without such a vision, India's urbanization has proceeded in an unplanned and oppressive way, with an estimated 170 million slum dwellers, at the mercy of the landlords of the informal economy, and hundreds of millions more dependent on the same informal economy for jobs.

Two other ideas fit into this section: the prevalence and importance of the English language, and the gradual national integration (which Nilekani refers to as the development of India's 'single market'). Nilekani tells the story of how English was deprecated as the language of the colonialists, after independence, but how the fact of the global importance of English has now been recognized in India and, like demographic trends, is to India's economic advantage. English, more than Hindi, has been the common language for all of India, and learning English is now seen as a gateway to opportunity inside and outside of India.

By setting his policy suggestions against the analysis of these big-picture trends—trends which are sometimes forgotten or neglected by those who focus more on political problems—Nilekani does a service for the reader. His adminstrative suggestions are also valuable.

Most of Nilekani's administrative suggestions are unobjectionable. The idea of using Geographic Information Systems (GIS) to digitize the land registry is sensible. So, too is the proposal for a universal ID card. No doubt that these kinds of technologies and databases have surveillance potential, but so does living in a village where everyone knows everyone else. Whether a government is left or right, liberal or conservative, it is judged on its ability to deliver: services, justice, security. It cannot deliver without information. Whether such information is used for good or ill depends on the balance of power between the government and the people—it depends, in other words, on politics. Indian politics being what they are, however, a UID presents new security risks and threats. Given the use of voters lists in the 2002 Gujarat massacres, what nefarious uses could a state captured by communalism or xenophobia put a UID to? Perhaps, rather than better tracking of citizens for better service delivery, Nilekani's other idea of direct benefits deserves support. In a context of universal access to health, education, water, and other basic services, there is much less need to track citizens or "means-test" test them.

His analysis of information technology is sharper than his discussion of physical infrastructure, which is more of a lamentation and a cry for updated infrastructure than the kind of set of specific proposals featured in the information technology chapters. Similarly, when he discusses the university system, Nilekani describes a "rot" in the Indian university sector, a lack of "leaders", but what exactly this "rot" is, and where leaders are supposed to lead the sector, remains vague. The solution to the "rot", however, is clear to Nilekani: greater involvement of the private sector. This is where Nilekani's economic and political analysis begins, and where this writer’s disagreements with Nilekani begin.

Nilekani's book begins with how his father's generation embraced Nehru and Nehru's socialist ideas. Now, though, Nilekani's narrative goes, socialism is outdated and it is time for "reform". By "reform", Nilekani is specifically talking about privatization, deregulation, the absence of tariff protections for the domestic economy, and the weakening of unions and of the public sector—a set of policies often summarized with the term, neoliberalism.

To Nilekani, a neoliberal, open economy provides access to opportunities, through the market, that a government captured by elite interests and traditional divisions of caste, region, ethnicity, cannot provide. But India's own experience with the market, imposed upon it by the violence of colonialism, shows that the market can exclude as harshly as any traditional form of oppression.

Citing Marxist writer Vivek Chibber, Nilekani shows how Indian 'socialism' was actually the capture of the economy by a small class, who used the government to protect themselves from competition while holding Indian consumers and workers captive. Chibber's analysis, and Nilekani's to this extent, is sound. Nilekani then argues that the neoliberal opening of the 1990s helped solve these problems. And it did solve some of them, but it also advanced the exclusion of the majority from any hope of economic advance or equality.

The solution to the crises of'Indian socialism' could have come from more socialism, rather than a rejection of it. Chibber's study contrasted India with the East Asian economies, including Taiwan and South Korea, where the state played a massive role in planning the economy. In Taiwan, the takeoff in manufacturing began when the landed elite were forced into a land reform, which they opposed, but which worked to their long-term advantage. But the Indian state was not going to do such a thing, as it was too beholden to these same elites. Perhaps the idea of a democratically planned economy for India is unrealistic, but such a thing would surely be 'newer' than decades-old, even centuries-old neoliberal policies dressed up as 'reforms'?

Nilekani laments the absence on the Indian political scene of a "reformer" (read: neoliberal) who is genuinely populist and able to communicate with the masses effectively: "we have had no prominent, popular champion of economic openness and reform in our politics." (pg. 144) But that is because the neoliberal message is always unpopular, because it is inhumane. This is why neoliberal policies are usually only enacted during crises, as Naomi Klein showed in her book, the Shock Doctrine.

Based on these economic views, Nilekani looks for solutions for India's future to the most unequal and dysfunctional welfare state in the developed world: the United States. To solve the "rot" in the university sector, for example, Nilekani looks to the multi-tier US university system. But the United States has the same kind of problem that India has: extraordinary elite education, and poor mass education, as well as other dysfunctions caused by extraordinarily high tuition fees (extremely high student debt, contributing to high household debt, and underemployment). Almost any country in the developed world, from Canada to the Scandinavian social democracies, would have provided a more equal system for a model. The same goes for primary education, where Nilekani advocates a voucher system—the same system that has proven disastrous for US school education. Nilekani also advocates the same voucher system that has made US health care both the most expensive and least efficient system in the West, and rounds it out by advocating a system like the disastrous US Social Security system for India. In all of these cases, Nilekani's weakness is in equating "the West" with "the US", when in fact the US is an outlier in the West for having a particularly dysfunctional welfare state. Had he, in his conversations, consulted with Richard Wilkinson and Kate Pickett, the authors of The Spirit Level (Allen Lane 2009), he would have seen the importance of inequality in exacerbating every social problem. An unequal society like India should not look to another unequal society like the US for welfare solutions. There are better models out in the world, and even better ones should be at least imaginable.

Unions are a particular target for Nilekani, with blame for India's schools falling on teacher's unions and blame for a shortage of jobs falling on unions in general. This isn't entirely logical. Given the distortions of the economy written about by Chibber and the dominance of the informal sector, India's unions were never the determining force in the economy. The incoherence sometimes leaks into the book. In the very section blaming teacher's unions for the weakness of schools, Nilekani writes: "In Kerala, sehool education was influenced by a motley collection of progressive movements... and the state placed an emphasis on making schooling universal." (pg. 194) The state in question was a communist one, with one of its major bases of support being—the unions. Surely, then, unions could not be the problem in education?

A few other logical inconsistencies afflict the economic analysis, all caused by the commitment to neoliberalism. On agriculture, Nilekani argues first that "India's labour-intensive agriculture... is in a unique position to utilize global markets as a launch pad for rapid growth." (pg. 139) But the same labour-intensity then becomes "low productivity" later on: "The low productivity in sectors such as milk production means that it takes seventy-five million Indians to produce 100 million tonnes of milk, while in the United States 100,000 people produce sixty million tonnes of milk." (pg. 326) Surely, though, in milk production, the productivity of the land, the productivity of the cows, the quality of life of the cows, the sustainability of production, all need to be considered? If they are considered, is it really obvious that US milk production is more "productive" than India's?

Another incredibly important question arises. If India could produce all the milk it needed with 100,000 people, are there jobs waiting for the 74.9 million people who are no longer needed? As Nilekani acknowledges (pg. 330), the service sector won't be enough for those coming into the job market from population growth, and that's before the authorities start throwing tens of millions out of work through decreasing agricultural labor intensity.

Also, is being a source of cheap labour good or bad? Nilekani writes: "with Indian factory worker costs 80 per cent lower than averages in developed markets, India can, with a deepening of reforms, become the next big source of manufacturing labour to a more cost-conscious world." (pg. 139) And also, that "India's white-knuckle rise has been unique in that its growth has not followed the Asian style export-driven, mercantile model that is making China and East Asia rich. India's growth has instead been driven by its domestic market, which accounts for two-thirds of its GDP and is powered by an already 300 million strong middle class." (pg. 140) It is unclear how these two things can be reconciled. If India's growth is driven by domestic consumption, surely jobs that impoverish domestic consumers can't be the path to future growth?

On the same subject, Nilekani approvingly quotes economist Martin Feldstein (pg. 411) saying "we now know that fully state-funded social security leads to low personal savings, and people retire earlier. Fully paid-for health coverage, where the user doesn't have to contribute, makes users of health care unconcerned about the costs, and generous unemployment insurance makes people slower in retraining themselves and looking for new jobs." Is any of this really bad, though? Do concerned citizens want sick people "thinking about costs" before they seek health care, does anybody want old people to retire later? What is so desireable about mass job insecurity—something India already knows plenty about, in any case?

Nilekani spoke to Martin Feldstein and Jeff Sachs, but if he didn't want to talk to Marxist economists (like Chibber, or for that matter Prabhat Patnaik) he should have spent a few hours with Paul Krugman, Joseph Stiglitz, or Ha-Joon Chang, for some Keynesian macroeconomics. One doubts he would have come out of it advocating a regressive Value Added Tax (VAT) for India. In fact, it seems that India's tax structure is sound—a heavy proportion from corporate taxes and a progressive income tax—but that it is undermined by tax shelters, corporate giveaways, and special economic zones—the kinds of things that have contributed to revenue crises in Western countries, including the United States.

Despite all this, Niiekani is not a free-market fanatic. Indeed, in one surprising section, Niiekani attributes current conflicts over reservations to the fact that "India never had a revolution. India is in fact a significant exception in that it was a huge and poor country which transitioned into democracy without any dramatic internal upheaval, and with our feudal structures intact." (pg. 298) In another section, he acknowledges that "Indian governments have failed to take into account the problems with private investments in public goods... Markets do not work as well in infrastructure, and this springs from the nature of public goods—which are 'expensive, durable, and immobile'." (pg. 242) He acknowledges the need for state responsibility in health and education. And his advocacy of a "direct benefit" system as an alternative to piecemeal subsidies (pg. 308) conflicts directly with neoliberal policy. Niiekani has come to the conclusion that the market is the best path to a fair, equal, and democratic society. The objective is laudable. The trouble is, the market will never get there.


*Imagining India: Ideas for the New Century
by Nandan Nilekani, Penguin Books, 2009

Vol. 46, No. 2, Jul 21- 27, 2013

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