Choose Between Shopkeepers And Planners

In my previous post, I wrote how "improved consumption" should be seen as a sign of "economic development." Since there are many among us who deride "consumerism," allow me to elaborate. After all, from the 1950s to the 1990s, why did millions of Indians migrate to the West - if not for "improved consumption"? If some nations are considered "developed" today, the only reason for this status is that their citizens are able to consume more and better goods. In the socialist India I grew up in, there was nothing at all to consume. The fact that the Indian consumer is far better provided for today than he was then is in itself proof of the validity of "economic reforms" in the 1990s. So let us not underrate the importance of consumption. Consumption is the goal of all production. We produce in order to consume.

In that post, I discussed the Bania shopkeeper:

In the small market town 3 kms from the village where I live in south Goa - the only market town in a vast, rural (and forested) district - is a Bania shopkeeper. His little shop is always crowded with poor villagers who come from miles around to buy this or that, in very small quantities. And he never fails them. I always get my carton of cigarettes from him - and he stocks hundreds of other goods. We should pause to appreciate the tremendous amount of diligence that goes into running such a shop, upon which so many rely, and how he "improves their consumption." When shops and markets close, people suffer - especially in far-flung parts of the empire. We may also note that all the mathematics the Bania uses are the four operations of Arithmetic.

Some additional points need to be noted: First, that this Bania, like all entrepreneurs, "makes provision for the uncertain future." When he buys his stocks, his mind is on the future needs of his customers, which he tries to successfully anticipate. Further: he invests his own money in provisioning for that future. He is a capitalist and speculator - and he "serves the people" in a very important way, and that is by improving their consumption.

Now, there are two ways by which we can pursue "economic development" - one is by using such shopkeepers as the vehicle, and the other is by using the central planners of The State.

When we contrast shopkeepers with planners, we see that the two perform very different kinds of "work." The shopkeeper has his eye on physical stocks and their rate of depletion as he sells hundreds of goods to his customers. The planner has no customers. The planner studies government files and government reports. On the basis of the recommendations in these files, the planner decides to allocate "public capital" towards certain projects aimed at improving the lives of the people. All these projects are executed by the bureaucracy. In all these cases, the bureaucracy benefits - not the people, whose needs remain unsatisfied, despite all the complex mathematics and detailed statistics. It is no coincidence that anything planned is in short supply - like roads and electricity. Only entrepreneurs can produce "goods"; governments produce "bads."

Let us also not forget that the planner is spending money that does not even exist - by borrowing and by printing - and that both taxation and inflation impair consumption.

We in India therefore have to choose between the Market and the State. We must see that only shopkeepers and free trade can improve our material lives - not planners. We must call for a completely free economy.

No more 5-year plans. No more "Indian Economics" textbooks.

I have been singing this song for a long, long time. Barely a week into my stint as editorial writer for The Economic Times (1998-2002) I wrote one titled "Close it down, Monty" in which Montek, then heading the Planning Commission, was advised to close down this house of horrors. The next morning, I was surprised to find that my editorial had not appeared. I called the editor and he replied that he simply could not publish such an opinion. I immediately offered to quit - for I said I was unwilling to co-exist with central planning. The edit was published the next day. The time has now come for more and more journalists to think along these lines - and shout, "Close it down, Monty."