Capital: India's oldest orphan

Rahul Gandhi recently reiterated an old Congress line at Mandsaur, namely that the party was against industrialists and for farmers. This did not, however, mean that the party was against industry and for agriculture.

He said the Modi government had waived Rs 2.5 trillion loans for top industrialists but had neglected the farmers. He added that within 10 days of coming to power he would waive all loans to farmers.

This is politics mixing up economics. Politics addresses people. Economics addresses resource allocation and use. Politicians in all countries do it but not quite in the manner that Indian politicians have done since 1947.

Basically, in the last 500 years, people in all countries have asked how the affairs of their nation should be organised. The earliest in the modern era were the English, who, in a short span of 80-odd years from 1610 to 1688, chose parliament over monarchy as the sovereign.

And they made the point very forcefully by cutting off the head of one of their Kings in 1649 and set the precedent for Europe. They were followed by the French, who made the same, if somewhat modified, choice in 1789. But they too cut off the head of the monarch in 1793.

The Russians followed much later when they overthrew their monarchy in 1917. But they replaced it not with a parliament but a dictator and his dictatorial party. Very kindly, they shot their King instead of guillotining him.

In 1949 the Chinese did the same thing, but not having a King by then, had to be content with exiling the usurper. Had he been a monarch, his head too probably would have been on a spike.

Both Russia and China succeeded in turning their countries from agrarian backwaters to industrial superpowers. Many countries in their immediate neighbourhood copied them. All have done well. 

So much for their political history. But what about their economic history? One feature stands out like a sore thumb: The governments of each one of them, without exception, sided with capital — state or private — against labour. 

In that sense, Karl Marx got it precisely right.

India shining

In India the dirty work of chasing out the monarch had already been done by the English in 1858. But no monarchical head was cut off, either then or in 1947, when the British voluntarily left.

So what was born was what Gunnar Myrdal, an Economics Nobel Prize winner, called a “soft state”. India’s brown Englishmen, who thought like Oxbridge dons, inherited the country.

They gave us a Constitution that emphasised equity in all matters, including the economy. Efficiency was not even made a directive principle.

One of the consequences of this imbalance was the right to form associations, which included trade unions. The creation of trade unions meant disputes. 

To resolve those disputes, the Industrial Disputes Act was legislated in 1948. It is a wonderful piece of legislation. But it violates the basic reason why economies industrialise rapidly, namely, it doesn’t allow labour to be scr**ed massively by capital.

Not just that: India also adopted universal franchise right from the start, something none of the countries that industrialised rapidly did. So capital was hobbled both legally and politically. Efficiency stood no chance.

In short, the socio-political preference ordering of developed countries in the mid-20th century was imposed on India when industrially India was still in the mid-19th century or thereabouts. This mix of European and American politico-social preferences ensured that India’s industrialisation would be hugely impeded.

Restoring the balance

From time to time, the BJP has tried to restore the balance. But it has never been in power long enough — a mere 10 years out of the 71 since 1947. The latest attempts have come in the last four years. 

The Congress, on the other hand, has played a double game. It has done very little formally to restore the balance. But informally it has been quite happy to side with capital by compensating it in a variety of ways out of the fisc. 

The result is that India’s industrial sector has become what in Hindi is called dhobi ka kutta, na ghar ka na ghaat ka. Or as the Americans say, it doesn’t know whether it is coming or going.

Mostly these days, it is going.