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Why no reforms?

india Updated: Jul 07, 2011 22:18 IST
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Much ink has been spilt in recent days and months attempting to diagnose the extravagant failure of the UPA government to deliver the much-needed second-generation economic reforms since the alliance returned to power in 2009. Freed from the clutches of its Left Front allies who had stymied reforms from 2004, it was widely expected that it would forge ahead with the reforms programme after the ruling coalition had its hands untied. That, as we now know, did not happen.

Several hypotheses have been advanced to explain the UPA’s inability to carry through on the unfinished reform agenda. I have suggested one such, which I have termed the ‘original sin’ of 1991: reforms were implemented as the result of a crisis and, with the corresponding logic of crisis management, with the intellectual foundations never laid out once the immediate threat to the economy had passed.

Without a firm commitment to a liberal economic principle, a reversion to populism and redistribution would be the natural knee-jerk reaction when political or other obstacles arise to pressing ahead with reforms.

All such theories, however, compelling as they may be, form what may be called in American argot, an ‘inside the beltway’ approach to thinking about economic policy. Such a mindset hinges on the behaviour of individual politicians and political parties, and, in particular, on whether they are driven ideologically or cravenly succumb to opportunistic political gains instead.

There is an entirely different lens through which this may be seen: to suggest instead that the Congress has been politically successful for doing what economists and political scientists have long argued is the recipe for electoral success in democratic polities, catering to the interests of the ‘median voter’. Perched at the very midpoint of the income and wealth distribution pyramid, the median voter in India is poor by any standards. When you consider that one-third of the population lives in absolute poverty, and two-thirds live in relative deprivation, the voter in the ‘middle’ is not part of the middle classes, as he would be in a western democracy.

Scholars have developed the ‘median voter theorem’ around this insight; a fancy name, but the basic idea is very simple: to be electorally successful, political parties must tailor their policies to those preferred by the median voter. Tilt too far to the left or to the right and you are lost. Sociologist and former Mexican politician Jorge Castañeda puts the implications pithily thus: “The combination of inequality and democracy tends to cause a movement to the left everywhere.” In other words, a politically successful party in a poor democracy such as India is going to pursue policies oriented around redistribution from the rich and middle classes to the poor, as these serve the interest of the median voter, who is poor. QED.

Of course, the reforms-minded economist would retort that growth-oriented economic reforms are, in fact, in the interest of the poor. If, for instance, labour laws are loosened and large-scale manufacturing takes off in India, this will be labour-intensive and will pull up many people from poverty into gainful employment. Why not, then, pursue such policies, and come up trumps, both economically and electorally?

The crux of the matter is that widely spread economic gains from reforms, which would be politically beneficial, come with a lag. New manufacturing industries do not spring up overnight, and it would be a matter of a few years or longer before large-scale employment increases follow. These are too long for the normal five-year electoral cycle of a government at the Centre. Given coalition compulsions, and the need to keep one eye cocked on important state elections, the politically relevant timeframe for economic policy to have tangible effects may be more like a year or two, at the most.

Seen in this light, tactics upstage strategy, and governments continue to focus on redistributive policies that put money in voters’ pockets right away and bring short-term political advantage. Only a government that is sufficiently patient to look beyond the next election and willing to cultivate the long-run political gains that would accrue from better economic performance will have the courage to push for economic reforms that may cost it at the polls a few years hence. Our friend the median voter will be likely to ensure, however, that this is not going to happen anytime soon. He is looking forward to his next meal, not even to the next election, and will keep politicians of all ideological stripes on a short leash.

( Vivek H Dehejia is an economics professor at Carleton University in Ottawa, Canada, and a Mumbai-based commentator on Indian economic and political affairs )

The views expressed by the author are personal