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Growing slow but steady

For inclusive development, redistribution is as vital as economic growth, writes Vivek Dehejia.

india Updated: Nov 18, 2011 00:35 IST

The debate about ‘inclusive development’ in India never seems to die. Like Frankenstein’s monster, it’s periodically resuscitated by partisans on either side; like Dracula, it’s neither dead nor fully alive.

Broadly, economists on the right argue that the only way to achieve inclusiveness is by focusing on the rate of economic growth, and allow rapid economic advance to pull the poor up out of poverty — that is rely on the ‘trickle down’ effect of market economics, to put it pejoratively.

Writing recently, Jagdish Bhagwati, economics professor at Columbia University, makes the case in no uncertain terms: “In short, for most developing countries, growth is the principal strategy for inclusive development — that is, development that consciously includes the marginal and poorest members of a society.”

He contends further that in “almost wilful ignorance” of the success of a growth-centred development strategy, critics on the left argue, incorrectly in his view, for an alternative ‘redistributive’ model, which may be understood as the ‘inclusive development’ agenda of the current UPA dispensation.

Arvind Panagariya, who holds a chair at Columbia University named in honour of Professor Bhagwati, is even more blunt. He claims: “Only in India does redistribution, which keeps the poor and marginalised out of the mainstream of the economy, pass for inclusive growth.”

He is equally scathing about what he sees as the harmful effects of a redistributive, as opposed to growth-centred, economic policy of the current government, which locks the poor into unproductive agriculture and prevents them from moving into gainful employment in the urban manufacturing sector, due, in large measure, to stringent labour laws that discourage the firing (and hence initial hiring) of workers.

The two economists make a compelling argument that redistribution without growth would be self-defeating in the long run. Many economists and policy analysts on the right will agree with them, as will the proponents of further economic reform who may be waiting in the wings for a change of government.

But what advocates of growth forget is that good economics is sometimes bad politics.

It is striking that Panagariya’s exemplary cases — in which a growth-centred development strategy has been successful — are South Korea and Taiwan in the 1960s and 1970s, and China today. One could also add Chile to this list.

All these countries accomplished their economic reforms under non-democratic, indeed outright autocratic political systems. Both South Korea and Taiwan were essentially one-party States during their period of rapid growth while Chile was ruled by a brutal and bloody military dictatorship. Similarly in China, the Communist Party retains an iron grip and brooks no dissent.

As has been observed, India is unique among developing countries in having become a democratic polity when it emerged as a post-colonial State. The consequences of that fact can’t be forgotten. While econ-omic reformers may wish to press ahead with next-generation reforms, scornful of redistributive and entitlement-based social programmes, their enthusiasm runs up against the reality that in a large country with poor but politically empowered voters, there is simply no alternative to an ‘inclusive development’ paradigm that incorporates a substantial amount of redistribution.

While poverty may have been substantially reduced due to economic growth — although the magnitude of this effect is yet another debate — what can’t be doubted is that growth does not have an unequivocally good effect on income inequality. It’s a feature of contemporary capitalism that the gains of economic growth are captured disproportionately by the rich.

An obsessive fixation with the growth rate, with no concern for redistribution, is something that is possible in totalitarian China, but inconceivable in pluralistic, democratic India. Equally, the rising aspirations of the poor and the newly-risen middle class in India, as in China, cannot be satisfied unless the government delivers an ongoing increase in their economic prospects, which will require continued economic growth.

The old debate between growth and redistribution is sterile. Of course, we need growth, and second-generation reforms that can deliver it. But active redistribution is a political necessity, and a political reality. Economic reformers may not like it, but they had better get used to it.

( Vivek Dehejia is an economics professor at Carleton University in Ottawa, Canada )

The views expressed by the author are personal