The Liberal Vision, India
Liberal Times , August 2001
Indian liberals have a powerful vision of a prosperous India: 400-500 free trading and self-governing cities. This contrasts radically with the Gandhian-socialist vision of an India composed of self-sufficient villages. Watch out for liberalism in India.
Liberals in India have been going around for quite some time selling a 'vision' of a modern, 'developed' India. This is based on simple economics and, since it has brought us considerable support, let me begin by sharing it with this wider audience. I do believe that this has tremendous implications for South Asia, and indeed the entire developing world. India has been a leader of the developing world and has led it up the grossly mistaken path of statism. When India decides to change course, the entire developing world will be influenced.
The Liberal Vision for India
The basic economic truth is that all human beings are blessed with what Adam Smith called 'a natural propensity to truck, barter and exchange'. The ability to trade is a gift from God. Little children engage in gainful trade: give me some of your chips and have a sip of my cola. No one has to be taught how to create wealth. All human beings are born wealth creating machines. We are all born to be rich. If there is poverty all around, it is because the State has placed innumerable restrictions on the free use of this ability. This implies that population is a resource, and that State policies are the problem.
Notion of Self Sufficiency
Because of this inborn ability to trade, human beings operate in the exchange economy of a market system. This enables them to occupy specialised niches in the market economy: butcher, baker, tailor, sailor and so on. No human being is 'self-sufficient'. To do so would be economic suicide; and it is no wonder that, if you ask a class of kindergarten children what they want to be when they grow up, they will answer: "policeman, singer, dancer, actor, pilot" None will say: "I want to be self-sufficient." It goes against the basic logic of little children. Yet, the economic policies of this vast nation were based on the notion of self-sufficiency. India opted out of the international division of labour.
Free Trading Cities
Now, Adam Smith had said that "the division of labour is limited by the size of the market". Thus, there is greater division of labour in crowded cities than in sparsely populated villages. In a crowded city like Delhi, it is possible to be a Thai chef, run an institute for ear diseases, drive a taxi or be a receptionist. In sparsely populated Jhoomritalaiya, it would be difficult to even be a successful dentist. Thus, it follows that cities and towns are vital engines of wealth generation. And, that population causes prosperity: cities are crowded, and rich.
The statist, socialist vision of India that planners have been selling and pursuing for over 50 years is of an India of millions of 'self-sufficient and self-governing villages'. As opposed to this, liberals believe India should aim to become a nation of 400 to 500 free trading cities. This causes, among our potential supporters, what Thomas Sowell called 'a conflict of visions'. As Sowell said, a conflict of visions lies at the ideological roots of all political struggles.
The Liberal Vision and Recent History
The urban vision of India's liberals is strongly supported by recent history, which saw to the building of all our major cities, and innumerable 'hill-stations'. It is easy to see that liberalism and a commercial spirit powered this urban boom, without which India would be much poorer today. Indeed, the greatest success story of British India was urban development.
In a letter that survives, dated 1717, the Directors' of the East India Company advised their Governor at Fort St. George (which developed to become Madras, now renamed Chennai): "Make your settlement a mart for all nations, that being the way God Almighty of old promised to make Jerusalem great." This was 60 years before The Wealth of Nations was penned.
Cities and Hill Stations
Because of their belief in the simple logic of commerce, the British pursued urban development that led to the building of many great cities and countless hill-stations. Independent India has only seen to the destruction of these cities and towns, and the mindless pursuit of 'rural development': the bread, butter and jam of the politico-administrative spoils system.
If we study the development of the hill-stations in British times, a peculiar pattern emerges: they were all linked to a major city. The Simla-Mussoorie belt was linked to Delhi; the Darjeeling-Shillong belt was linked to Calcutta; the Poona-Mahabaleshwar belt was linked to Bombay; and Ooty and the Nilgiri hill-stations were linked to both Madras as well as Bangalore. They were satellite towns. And they could be so only because of transportation links: Darjeeling had its hill-railway before Japan had its first train.
Primacy and Urban Overcrowding
The centrally planned socialist Indian state's policies have, for 50 years, neglected roads. (They also did not promote car ownership.) This has caused the British-built primary cities to bloat and led to the underdevelopment of satellite towns. A typical 250 km journey out of bloated Delhi to, say, Dehradoon, will take one through several major towns: Meerut, Modinagar, Khatauli, Muzaffarnagar and Roorkee. Because the road barely exists, these towns are crippled; and all in-migration focuses on the city.
Primary City and Satellite Towns
Urban geographers call this phenomenon 'primacy': where the primary city becomes over-important since it lacks sound transportational links within the domestic urban hierarchy. Thus, we have 'overcrowding' - which is not the same as 'overpopulation' - and the cure lies not in condoms, but in roads and car ownership. These will lead to the development of satellite towns and the decongestion of primary cities. We have to only follow the British pattern of building hill-stations and India can become, through sound transportational links, a nation of 400 top-class urban areas. The transportational design required is one of 'hubs-and-spokes': treat every primary city as a 'hub' and develop 'spokes' from it. Along the spokes, build the satellite towns.
Protectionist Policies of the State
Unfortunately, the socialist State is yet to get its act together when it comes to the roads infrastructure. And the socialists, with their preference for protectionism, have practically banned used car imports - something that would be a boon for all Indians, deprived of wheels for over 50 years. These protectionist policies are so perverse that they are now protecting multinational car companies operating in India!
With free trade, and aggressive urbanisation, India will be a rich country. If we re-write our Constitution to respect property rights, slums will disappear as rent control will be deemed unconstitutional. This perverse law is the only cause of slums and slumlords. The socialists insist on keeping this law; liberals wish to create a vibrant market for cheap rentals.
TheGovernment of Cities
Socialist India has, for 50 years, pursued the path of Panchayati Raj: institutions of village self-governance. Of course, they have done so without much heart, and hence, without much success. The liberals, on the other hand, stress the need for sound municipal organisation to run each of the 500 free-trading cities.
Socialist India has also been run bureaucratically, and this has led, as public choice theory predicts, to massive budgetary overruns. The future requires us to get rid of bureaus in the provision of public goods and services, and have all the cities and towns run by minimalist administration, based on the principles of the New Public Management. Garbage collection - a major problem - can be contracted out. Primary education - a crying need - can be provided by voucherisation. And so on.
Principle of 'Subsidiarity'
If we institute the principle of 'subsidiarity', there will be very few tasks left to a central authority. This will take the spoils away from politics and administration, and India will finally have honest, knowledgeable and respected politicians and administrators. The central authority of India will be but the collective representative of an association of free trading cities - something like the Hanseatic League of old. It will not be a nation-state: the kind that dominated the world the entire 20 th century.
The Future of Village India
At a recent talk to farmers belonging to the Shetkari Sanghatana - a free market farmers' movement - I 'sold' our urban vision and was promptly asked what this had in store for our farmers. I replied that the development economics literature abounds with stories of village India being full of 'marginal farmers' and 'landless labourers'. These people are all supposed to be engaged in 'subsistence agriculture'.
But the fact is that subsistence agriculture is not the division of labour. It is self-sufficiency - and hence, economic suicide. Those who are stuck in village India in such conditions would be better off migrating to one of the 500 cities we will build and participating in the greater division of labour possible there. Village India is poor because more and more people are sharing a pie that is steadily shrinking: the share of agriculture in GDP is under constant decline. Prosperity lies in more and more of those marginalised in agriculture shifting to the towns.
This is something the socialists have never encouraged. At the 1998 Economic Editors' Conference, the then head of our Planning Commission, Jaswant Singh, said that his greatest desire was to see that no villager would move to a city! My audience liked the idea of moving to cities. Their only question was: Why can't we have free immigration worldwide?
If India pursues the liberal path, and aggressive urbanisation is accompanied by massive rural-urban migration, Indian agriculture will no longer be the kind it is today. Nor will there be any need for 'land reforms'. The only role of the State will be to enforce property rights: something that is not being done properly today.
Relations with Neighbours
The 400-500 free trading cities that will comprise India in the near future will all be self-governing. This will allow tremendous diversity. We will have towns like Haridwar where it is illegal to eat meat or drink alcohol, but it is perfectly legal to smoke hashish. In keeping with the spirit of diversity, residents of an urban area should be allowed to make their own rules as they go along; the central authority need not interfere.
In such a scenario, taxation will be a local subject; and the cities will compete for citizens on the basis of public goods offered at specified tax rates. Those cities that offer better services at lower rates will attract citizens and taxpayers; those that are badly run and expensive on the purse will see decline. That is, local funded by contributions from the member cities.
Free Trade and Free Immigration
In this proposed arrangement, it is difficult to expect the member cities to fund something like statist diplomacy. It would be better - and cheaper - to practice free immigration and allow the neighbourhood to adjust to the changes that will be sweeping India. Without an India that is an empire, or a hegemony, neighbouring states will be quick to see their future in the free trade and free immigration policies that India's free trading cities will employ. The whole of South Asia will be peaceful, and prosperous - and the rest of the world will wonder at us.
It is also important to note that the Hindu-Muslim question has dominated politics in the region for much of the last century. Liberals hope this new millennium will be different. We believe Hindus and Muslims can coexist happily in a free market. Hindus were the first to note the beneficial effects of Adam Smith's 'invisible hand' and say Shubh Laabh: profits are auspicious; and the Prophet Muhammad, peace be upon him, was a free trader, as was his wife Khadija. Islam is the morality of honest traders, not soldiers. If we stress this basic commonness between Hinduism and Islam - that they both believe in a free market - both communities can happily co-exist, and the entire region can be peaceful.
Urban Trends and Globalisation
The world is 50 per cent urbanised today: 3 billion urbanites. This is expected to peak at 85 per cent within 50 years - living on just 7 per cent of the Earth's land. India is lagging behind at 30 odd per cent urban, but the richest states of India (like Maharashtra and Gujarat) are close to the world average. What is powering today's urban boom is globalisation - and the future lies in excellent, globally connected, free trading cities: the hubs and spokes of the global economic system that is emerging.
World Market and World Factory
Along with urbanisation, countries like India will also see massive industrialisation - only if they get their infrastructure working. Today, unlike the globalisation in the 18 th and 19 th centuries, industrialisation is not restricting itself to the 'core' of the world economic system. Instead, the West is witnessing 'post-industrialisation' and smart companies catering to the world market are moving their production facilities to places where the economics makes sense. The world is not only the market; the world is also the factory.
India has skilled labour, and the English language is widely understood. It can be a manufacturing destination of choice in the global economy. The infrastructure is the only limitation. With good roads and ports, abundant power and water, and plenty of good cities and towns, India can emerge not only as a trading force, but also a manufacturing power. The only difference now is that the manufacturers will not be protected.
Killing Predatory States
The vision above, which liberals in India are selling aggressively, is based on the urgent need to finish off the predatory states that have brought the entire Third World to ruin. These states have been supported by the United Nations - they are all members - and they have received monies and advice from international bodies. The vision that drove the international community was one of a world divided into nationstates, each a prison for its citizens. Here, they suffered bad government and misgovernance. Here, flourished a kleptocracy. This occurred largely because standard 'development economics' literature upheld a strong role for the state in the development of poor nations.
Today, development economics has undergone a revolution thanks to the works of Lord Peter Bauer, Deepak Lal and Julian Simon. Today, it is seen that very few things are needed to make the Third World at par with the First: free trade, sound money and property rights. This requires limited government: a government whose powers are limited by constitution in order to provide a leading role to civil society. This intellectual revolution is sweeping the Third World, and it is undoubtedly true that huge political change will follow.
Predatory States: Kleptocracies
The states of the Third World are largely predatory states: kleptocracies. The socialist Indian state is no different. It makes cars but does not build roads. It pursues 'rural development' but does not connect villages to the nearest city or town by a good motorable road - thereby creating, sustaining and preserving the 'rural-urban divide'. And, of course, it's policies deny affordable wheels to its citizens. It restricts trade at every level. And the petty bureaucracy of police and municipal functionaries prey on the unorganised, informal sector of hawkers and street vendors. It is because of states like this that masses of humanity remain poor.
The majority of the world's poor reside in India. Getting rid of poverty requires getting rid of the state. Nothing less. When we no longer have a nation-state, we need not belong to the United Nations, and the rest of the Third World can learn from us. The collapse of the Soviet Union changed the whole of East Europe. The collapse of Indian socialism will change the entire Third World.
Today, one of the blots on Indian democracy is that liberals are denied the right to form political parties and compete for votes. It is imperative that liberals form a party and actively campaign against this restriction. Liberalism in India has a powerful vision that attracts widespread support. Compared to us, the legal parties spew out the same old dead socialist rhetoric. And they have no vision. And there is simply too much corruption.
Liberal Parties and Think Tanks
Today, there are some fledgling liberal parties in South Asia - all supporting a dynamic free market in the region so as to enable prosperity. It would help if India too had such a party, and this party could have relations with the other liberal parties in the region. In India, although liberals do not have a real political party, they have a few 'think-tanks' and these are doing commendable work in public education and policy advocacy. Indeed, it may even be said that these think-tanks have succeeded in creating the intellectual climate for liberalism. They have unearthed and nurtured a vast amount of liberal sentiment that lies beneath the surface of Indian society; and all that is required today is the formation of a party to carry this sentiment into political reality. I do believe that the next few years will be crucial. Watch out for India's liberals. They are out to change the world as we know it. "