AAP can take a leaf out of Amartya Sen’s book

Many analysts and businessmen fear that the Aam Aadmi Party (AAP), dominated by socialists and Marxists like Yogendra Yadav and Prashant Bhushan, is an extreme Left party. These fears are overblown.

The AAP has appointed a seven-member committee to formulate its economic policy. This includes libertarian economist Laveesh Bhandari and business honchos like Meera Sanyal (former chief of Royal Bank of Scotland) and Sanjiv Aga (former chief of Idea Cellular). Clearly, AAP does not have a closed leftist mind, and wants to incorporate a variety of views.

Its main focus is good governance. So, unsurprisingly , the committee is headed by anti-corruption crusader Prithvi Reddy. This is an excellent starting point for economic liberals in the committee, because a dynamic, competitive market requires a corruption-free business climate. Robert Klitgaard, a world famous authority on corruption, famously declared that corruption is equal to monopoly plus discretion minus accountability (C=M+D-A ). So, reducing corruption means reducing monopoly, reducing political discretion and improving accountability. All three elements are intrinsic to economic liberalization.

Removing all elements of monopoly means promoting competition to the maximum extent possible, abolishing preferences for all vote banks ranging from favoured business groups to regional and swadeshi lobbies. Reducing discretion means dismantling regulations and barriers that give politicians the discretion to favour this or that company. Improving accountability means open competition, not deals in the dark and reforms to create a policejudicial system that quickly penalizes law-breakers.

Asking Marxists, socialists and libertarians to come up with an agreed formula may produce a messy compromise rife with internal contradictions. It will be helpful to cite a respected authority as an appropriate trail blazer. Probably the best candidate is Nobel laureate Amartya Sen.

The recent book by Sen and Jean Dreze, An Uncertain Glory: India and its Contradiction, has an agenda broadly acceptable to a range of thinkers. The book highlights the lack of attention paid by governments to many essential needs, especially of the poor, and above all, of women. Rapid economic growth has co-existed with grossly inadequate social services (education and health) and physical services (safe water, electricity, drainage, transportation and sanitation). The book cites successful countries like Korea and China to argue that fast economic growth is not sustainable without strong development of human capital and essential infrastructure. India lags behind many countries at a similar level of development, and even behind poor Bangladesh.

AAP leftists will happily accept the book’s social agenda. Economic liberals in the AAP Committee will also be happy to emphasize other aspects of the book. Sen has often been accused of underplaying the importance of markets and economic growth, but in this book he and Dreze emphasize that rapid economic growth is crucial. They say categorically that fast growth provides rising opportunities, jobs and incomes. Moreover, fast growth also produces revenues that can be used for essential social services and infrastructure that create more equality of opportunity for all — especially the poor and women. There is no trade-off between fast growth and human development: the two buttress one another.

Economic liberals in the AAP Committee will be happy to cite the condemnation by Sen and Dreze of red tape and senseless regulatory barriers that hit economic growth and benefit only the corrupt and powerful. Many sorts of regulations are indeed needed, but India is full of perverse ones. Sen and Dreze have roundly denounced populist subsidies that are not targeted at the poor. They oppose free electricity for all farmers. They oppose widespread subsidies on petroleum products, especially diesel. They say that by eliminating stupid subsidies and many unwarranted tax breaks, it will be quite feasible to finance subsidies and essential services for the poor, and will not entail populist financial excesses.

Reformers will agree with much of this. They will also have disagreements too. Sen and Dreze seem keener on expanding leaky, failed programmes than on formulating strong measures to punish teachers, health staff or other bureaucrats for non-performance. Their data on poverty is outdated and hence very misleading. Now that GDP growth has plunged three years in a row, their complaint about excessive attention to growth sounds seriously misplaced.

Yet if liberals are to create common ground with socialists and Marxists in the AAP, Sen and Dreze offer a promising blueprint, despite some shortcomings. It would be silly for the liberals to cite Adam Smith or Friedrich Hayek as appropriate gurus for the AAP Committee. Even Bhagwati will be unacceptable. Amartya Sen, in his latest avataar, fits the bill. Klitgaard is a good supplement.

4 thoughts on “AAP can take a leaf out of Amartya Sen’s book

  • 2014.Mar.04 at 11:29
    Permalink

    Interesting to see that AAP is putting its best document forward. The concerns remain about it’s capability to affect a smooth transition from the path of a globalized economy that MMS & Co put it on, back to roots and villages.

    It’s easy to get infatuated with renaissance models, while forgetting that such U turns usually result in car wrecks without a firm hand at the wheel.

    Reply
  • 2014.Feb.24 at 10:38
    Permalink

    Missed this nice piece on the ET, Mr Aiyar. Love your work.

    Fully subscribe to your views. But I’m afraid Mr Sen’s views are pretty well known, no matter how much emphasis on growth he places in his book. This is an economist who wasn’t fully behind the ’91 reforms opening up India! The other point I wanted to make is that India desperately desperately needs a smaller state to supplement the new empowered watchdogs (be it the LokPal, CVC or CAG). The state has no business being in businesses like Air India and Scooters India. A larger state breeds corruption. Period. Unfortunately India, under the Klepto Party of India, has gone the reverse direction in the last 10 years. Not only has Air India been revived, subsidies have shot through the roof, investments have collapsed partly thanks to negative real rates, inflation is 90% a govt phenomenon…and in a deflationary world, quite an achievement! And what’s worse, now the PSU banks have to be recapitalised…by the govt. Instead of trying to get out of the credit creation, intermediation process, lowering bad assets, where the administration’s failures are well know, we are going the other way!

    Reply
  • 2014.Feb.18 at 18:56
    Permalink

    I agree with Nishant Sir regarding the firmness of the Rules and Regulations. At the same time we should consider the state of situation (conditions prevailing in our society) and change them if need be, for the larger interest of the society. The source of all Powers, Rules and Regulations: the Constitution of India itself is amended many times due to the above reason.

    Reply
  • 2014.Feb.16 at 23:45
    Permalink

    Rules and regulations are part of the system, that can’t be relaxed for curbing redtapism. Rather we have to learn how to adapt ourself in this existing rules and regulations. And for removing monopoly and discretion, need to think some other solutions.

    Reply

What do you think?