As an economist from India, I believe that finding a solution to our mass poverty ought to top the agenda. Over 500 million people in our country remain mired in extreme poverty. The painful truth of this grim reality was brought into sharp focus the other day when I read this ToI news report on the state of Maharashtra. This quote is telling:
The report says that much of Maharashtra is worse off than Bihar and UP. And, anyway, most of the people in Mumbai live in slums.
To solve the problem of mass poverty in India, my consistent approach has always been to look for the reasons why other nations have prospered. If this approach is taken, certain key factors stand out: Property, Liberty, Free Trade and Sound Money.
Property unlocks the "mystery of capital." Liberty means an absence of State-imposed obstructions to wealth-creation. Free trade means success as consumers. And sound money is that whose value is stable, which is not corroded by inflation. Note that none of these conditions are present in our country. There are some more factors that need to be stressed.
First: for any poor country, it is vital that there be no barriers to the import of Capital. Wages can only rise if labour is employed by the side of Capital. The more Capital there is, the merrier. In this area, too, our policies remain obstructive.
Second: labour unions, labour legislation, minimum wages - these actually work against the interests of the masses of poor workers. A free, competitive market for workers is good for all workers. Here too, we are on the wrong track. But it seems that Chacha Manmohan has woken up to this economic truth. In this report, Chacha is quoted as saying:
“Is it possible that our best intentions for labour are not actually met by laws that sound progressive on paper but end up hurting the very workers they are meant to protect?”
Two more factors vital for widespread prosperity are - one, urbanisation, because cities and towns maximise the "division of labour"; and two - transportation, particularly roads, without which trade becomes inefficient and slow, and the spread of urbanisation is also impeded.
Thus, in ALL these areas I have listed above, we in India are doing nothing.
Let us now turn to what our The State is actually doing - and that is "capital consumption."
All the huge expenditure on "welfare" is consumed, not invested.
To pay for these huge expenditures, our The State is taxing the people (so these people invest less than they could have); it is borrowing heavily (so there is less to lend out to genuine investors); and it is printing money plain and simple, thereby causing high inflation.
Permanent creeping inflation corrodes the Capital of the poor - who must save and invest, because they cannot borrow. Imagine the plight of some poor chap saving money to invest in, say, a little shop or an auto-rickshaw. With every passing year, his goal slips further and further away from his grasp.
Thus, whatever our The State is doing in the name of the poor is actually ending up hurting the very same poor.
Every nation that is wealthy today started off poor. England started off poor. America started off poor. Singapore and Hong Kong also started off poor. None of them received "foreign aid." None employed public funds for "welfare" - and, when some of them did so in recent times, they declined.
So I remain firm in my conclusion: For raising the living standards of our poverty-stricken masses we need Capital - which should be invested and not consumed. We need Property and Liberty. We need Free trade and Sound Money. A free market for labour. An emphasis on urbanisation. And an emphasis on transportation, particularly roads.
We don't need socialism, social justice, and redistribution.
And we certainly don't need a "right to free and compulsory education."
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