Neo-illiberalism is India’s bane

Dear Justices Nijjar and Reddy,

Many of us welcome your decision in the Supreme Court case on black money, castigating the government for its inaction and setting up an independent special investigative team. This approach needs to be institutionalized: i have long argued for an independent Police Commission, analogous to the Election Commission.

However, in a long preamble to your judgment, you attribute black money and the “predatory state” to neo-liberal ideology. Excuse me, but the very opposite is true: the licence-permit raj is what creates a predatory state in which politicians make money out of controls. This would be difficult or impossible in a liberal framework that has impartial rules and no political discretion.

Liberals aim to get rid of controls imposed in the holy name of socialism and then used for kickbacks and patronage networks. Instead, liberals seek a rule-based system and free competition that ends kickbacks and favours.

You refer to neo-liberals promoting a “greed is good” model. May i request you to cite a single great liberal who ever said that? On the contrary, the books of great liberal thinkers from Adam Smith (“ The Theory of Moral Sentiments” ) to Milton Friedman (“ Free to Choose” ), all emphasize morality. Friedman says the foremost argument for free markets is not efficiency but morality—freedom to choose empowers citizens, whether in politics or the market, and the moral imperative of such empowerment matters much more than higher GDP.

“Greed is good” is the quip of a fictional character, Gordon Gecko, in the Hollywood film “Wall Street.” Unable to cope with the reality of Smith or Friedman, the Indian left invokes Hollywood. We trust your future judgments will cite reallife liberal giants.

Neo-liberalism is said to represent the abolition of nearly all regulations, leaving everything to markets. No country has such a regime and never will—governments do not come to power in order to abolish all their powers. So, neo-liberalism is a straw man. Far from being neo-liberal, India remains terribly illiberal. The 2G scandal, the Adarsh housing scam, the Commonwealth Games scam and many others are the consequence of politicians making money out of allocations, permits and contracts.

The Heritage Institute brings out an annual Index of Economic Freedom. This has long shown a strong relationship between economic freedoms on the one hand and income and lack of corruption on the other. The freest societies-—Singapore, Hong Kong, New Zealand—are also among the cleanest.

In this Index of Economic Freedom, India ranks 124th out of 183 countries. Is this really too liberal? Would we be better off becoming even less liberal and matching Togo (153rd) or Sierra Leone (164th)?

The Heritage Foundation divides all countries into six categories, ranging from free to repressed. India, alas, falls into the category “mostly unfree”. Will we be better off moving to the category “unfree”? Should we be going in the direction of North Korea and Myanmar?

Again, consider the Doing Business reports of the IFC/ World Bank. The 2011 report rates India 134th out of 183 countries in “ease of doing business”. Is it not a cruel joke to call this neo-liberal? India ranks among the most illiberal countries in the world in starting a new business (166th), getting a construction permit (177th) and enforcing contracts (182nd). Is there really a case for tightening controls and coming last in the world?

India has indeed liberalized industrial licences, import licences and foreign exchange. But in other areas, we have half-baked liberalization where permits and allocations are still needed, enabling politicians and their cronies to mint money. Full liberalization ends corruption and black money. For instance, if industrial licensing is abolished, nobody can demand or receive bribes for licences. Foreign exchange convertibility on current account has killed the black market premium on the dollar. The slashing of import duties has virtually ended the once massive smuggling of gold, electronics and synthetic fibres.

But we have moved from the old illiberalism (where everything was controlled) to a new illiberalism, where some sectors are liberalized (helping increase the economic cake), while other sectors are kept illiberal to enable politicians to extract more than ever out of an expanding economic cake. This is not neo-liberalism. It is neo-illiberalism. This is not the Washington Consensus. It is better called the New Delhi Consensus—all parties are fully agreed on continuing to making money out of a smaller but hugely profitable licence-permit raj.

We trust that in your next judgment, you will castigate this New Delhi Consensus as a cesspool of illiberalism that spawns corruption and black money. The problem is not neoliberalism. It’s neo-illiberalism.

2 thoughts on “Neo-illiberalism is India’s bane

  • 2011.Jul.24 at 13:03
    Permalink

    Friedman says the foremost argument for free markets is not efficiency but morality—is not money buys and sells morality? What is the reason for the present world economic disaster we are facing from US – Europe to Asia? Free market visualises that morality will take care of everything, but our experinece is difefrent. Like communism and socialism named as Utopian – this free market also not an utopian theory, in reality greed takes over morality?

    Reply
  • 2011.Jul.18 at 22:08
    Permalink

    Great post, fantastic examples. The court’s preamble reminds me of Paul Krugman’s NYT article where he claimed that libertarianism needs honest politicians; on the contrary, libertarians want to give less power to government because it is made of fallible humans. As Bastiat said, they are not made of a finer clay than we are.

    Reply

What do you think?