The evidence is not final or entirely one-sided but clearly politicians who had initiated reforms which are both sensible and fair are getting the heebie-jeebies. The average Indian voter, used to a diet of populist largesse, takes unkindly to those trying to tell them that free rides are over. Even if reforms are not as universally unpopular as most politicians think them to be, none feels that a successful career can be built on a reformist platform. This raises the question: are reforms possible under Indias democratic setup in which the masses have come to expect a unique brand of populism?
This is in sharp contrast to East Asia where the latest crisis has taken place because democracy has not full taken root. Many institutions, which should have developed their own independent ethos, have been accepting the diktats of the ruling elite and those close to it against their better judgment. In fact, East and Southeast Asias speeded up journey towards democracy since the late 80s is said to have been dictated a good bit by the need for more decentralised decision making in their increasingly complex economies than the earlier dictatorial regimes could deliver. Halfway round the world, the new stability, both political and inflationary, in Latin America, giving it today unparalleled growth prospects, is said to be a consequence of the banishment of its notorious military dictatorships.
India missed out on not just East Asian growth but also the Chinese type of physical and human capital building because in the early stages of development it lacked dictators who knew what was good for the country. What is worse, today it stands in danger of moving away from the reforms that put it on the path of 7 per cent plus growth because politicians feel they cannot openly root for the new economic policies and still hope to win elections.
Can there be a way out of this dilemma? One society, in which politicians have succeed in straightforwardly selling reforms, is Britain. Mrs Thatcher has gone down in the history books precisely for that reason. Her reform programme was initially quite unpopular and it was her successful waving of the flag in the Falklands war that gave her the popular support to carry through her programme. But her economic philosophy did not entirely ride piggyback on her popular appeal; it had a life of its own. The privatisation of British public sector behemoths at attractive prices allowed large sections of the middle class to own shares, profit from them and support the new system. The accompanying economic recovery also helped.
But these cannot provide the complete answer. Winston Churchill realised in 1945 that even the greatest war hero could not stand in the way of economic change whose time had come. And George Bush realised much later that sound economic management did not provide a ticket to a second term. Perhaps the greatest legitimisation of Thatcherism came from her Labour party successor, Tony Blair, who redefined leftism to enable it to come to terms with new economic realities.
The British example offers several clues as to what can work. First, all change that shakes up the status quo is initially met with howls of protest from the vested interests. So both guts and luck are needed. Picking up friends on the way helps. For example, the last three Indian governments could have aggressively sold public sector shares to the burgeoning middle class which would have profited from it and become a part of the reform vote bank, far outstripping the opposition of the public sector staff. This would have also given the state the resources to finance popular public sector investment. Further, a stock market revived by heavily traded public sector paper, would have aided economic recovery as well.
But the more serious lesson is to know what is the predominant reality in a society. The old British Left lost out because it failed to realise that working class causes were peripheral issues to a society in which trade union membership was falling and the size of the middle class burgeoning. On the other hand, India is still a predominantly poor country where the interests of the bottom half of the population must form the core of any reform programme.
It is poor economics and even poorer politics to keep raising issue prices of foodgrains in an attempt to cut budgetary deficits, thus raising poverty levels. It is equally unsound to bail out states from their budgetary problems by giving them extra cheap grain which has no means of finding the very poor who have not yet been given special ration cards. Rigorous food for work programmes in localised areas of distress holds the key. Also, for a government armed with disinvestment proceeds, spreading the reach of primary education and basic health care rapidly is more of an administrative challenge. Acting vigorously in these three areas while following the rest of the economic reform agenda would have been both feasible and politically sound.
The political challenge in carrying out reforms was succinctly explained by a visiting British minister who told his audience: Why did we do it? You are in politics because you have a strong feeling about what needs doing and want to put that in place; because you feel you can lead people into thinking differently. For India or Indonesia, the better way to reform is for politicians with skill and guts to come forward and change the established order of things. The other way is via crisis, threat of payment default and imposed IMF conditionalities.
