Why the Indian left should learn to love liberalism

A real left-wing agenda would embrace reform*

India is in the midst of a burning discussion about the pros and cons of market-friendly reforms and greater economic liberalism. We all know what the package contains—competition, labour-market flexibility, liberalisation of services, lower taxes, and privatisations.

The traditional debate runs as follows. These reforms are “right wing” policies. They may increase efficiency – perhaps even economic growth—but they also tend to increase inequality and to be detrimental for the poorest in society. Therefore—and here comes the typical “socially compassionate” Indian argument—be very careful moving in that direction. Governments should proceed cautiously and be ready to backtrack at any point.

Much of this reasoning is fundamentally wrong. Labour-market flexibility, deregulation of the service industry, pension reforms and greater competition in university funding is not anti-equality. Such reforms shift financing from taxpayers to the users themselves and, as such, tend to eliminate rents. They tend to increase productivity by basing rewards on merit rather than on being an insider. They tend to open up opportunities for younger workers who are not yet well-connected. Pursuing pro-market reforms does not imply facing a trade-off between efficiency and social justice. In this sense, pro-market policies are “left wing”, if that means reducing the economic privileges enjoyed by “insiders”.

If there is no trade-off then between social justice and efficiency in today’s India, why are reforms so slow in coming? Why is the typical “compassionate” Indian voter confused about the pro-poor features of pro-market reforms? The answer is the usual one in political economics—the “insiders” block reforms, although the political mechanisms vary from country to country. Alas, they can’t simply say no to reforms just because they would hurt their interests. They need the rhetoric of defending the weak and poor.

Reformists in India should refuse to be pushed in the corner of the equation: “more market equals more injustice”. It is exactly the opposite. Accepting this equation—and trying to apologise for it—is certainly not the way to win the battle. If the Indian left wants to be able to say honestly that it fights for the neediest members of our society, it must adopt as its battle cry the pursuit of competition, reforms and a system based on meritocracy.

*With due apologies to Alberto Alesina and Francesco Giavazzi at VoxEU.org who wrote this in the context of Europe. I just swapped ‘Europe’ with ‘India’.

10 thoughts on “Why the Indian left should learn to love liberalism”

  1. In a democracy like ours, the support for reforms boils down to what is shown to the voter. As we know, the average Indian voter is gullible (and sometimes poor?) enough to fall for anti-business rhetoric.

  2. Even in a market-economy, you need government to facilitate equal distribution of the wealth accumulated. This is a fundamental premise of success for capitalism. You can not ignore the enormous inequities ny pro-neoliberalist countries (chile, USA etc). You need good governance to make sure that the market benefits people – not the other way around.

    Capitalism is a mean for the pursuit of happiness, it must never be the sole goal of a nation.

  3. Nitin: I don’t know if the Indian voter is really anti-liberal, or even has a bleeding heart for that matter. The voter I feel, understands the vested interests that are couched behind the politicians’ compassion rhetoric. And in most cases, the voter is part of the vested interest. Yes, these are short term advantages that have long-term ramifications that are not so good, but that is what one can expect out of the 5 yr election cycle.

    The Indian left on the other hand, is not even in touch with this aspect of the voters behaviour. Frankly, I don’t think too many real people care about ‘dialectic materialism’, or ‘Class-struggle’. This being the case, the Indian left is very unlikely to even acknowledge reality, leave alone modify its position to suit it.

    okplayer: The market is not “another way” to run the economy, it is actually a word to define how interactions happen. Government on the other hand, is the creature that keeps moving the hands on a clock in the false assumption that it is changing the progress of time.

  4. Nitin:

    The left does embrace liberalism, it just won’t admit to it. For example, the Left Front condemns MNCs on one hand yet woo them to invest in their states. They actively seek FDIs.

    They also own a galaxy of different companies and, at times, engage in the same neo-liberal practices they routinely criticize. It is inherent contradiction that gets them in trouble like, for example, in Nandigram.

    In the end, it’s all about power.

  5. Nitin,

    Thats the thing. The left in India does not espouse the cause of the poor. It’s major support comes from the millions of trade union workers in the country. These form a very small percentage of the total workforce but hog a large percentage of the benifits. The left will work tooth and nail to support it’s base. That can be seen by the opposition to privitization, agitation for increase in PPF, no relaxed labour laws etc.

    That is not a bad thing, let the left work for it’s base. However we should not be under any illusions that it works for the poor. It does not.

  6. Nitin,

    The operative word is “honesty.” But if the Europeans become honest and turn pro-market, Bharatiya left-wingers will turn tail without much prodding.

    There is more to left-wingers than political parties. Commies may be begging for MNCs but there is plenty more areas where they don’t allow free markets – farming or property rights or retail, for example.

    Finally, for most left-wingers the constituent that’s hurting is not a poor consumer but usually producers of various colours. They are the ones protected.

  7. With due apologies to Alberto Alesina and Francesco Giavazzi at VoxEU.org who wrote this in the context of Europe. I just swapped ‘Europe’ with ‘India’

    Ah! I would have sworn I had read this before 🙂 I immediately thought of sending it to you when I first read the original one. Glad you got to it first.

    PS. totally dig the new look. Your blog is a perfect fit for this theme and wanted to see a change from your age-old template.

  8. Okplayer,

    Even in a market-economy, you need government to facilitate equal distribution of the wealth accumulated. This is a fundamental premise of success for capitalism.

    No. It is not. The government can provide access to equal rights, and civil liberties while preventing overt discrimination in order to ensure at best equal opportunity. Wealth distribution is never the prerogative of the government even in classical liberalism.

  9. Nitin,
    Did you just put the words “left” and “honesty” in the same sentence ? Sorry you lost me there 🙂

    okplayer, i dont know if you are a commited communist or in the process of becoming one, but i really hope that you can see the absurdity of the concept of “facilitatiting the redistribution of accumulated wealth”.

    Also, this is not the fundamental premise for the success of capitalism.The fundamental premise of capitalism is that wealth is created due to a person’s talents and hardwork and the Govt should stay the hell out of it as its intentions in “re-distributing wealth” are almost always corrupt at best and its actions in trying to redistribute wealth grossly tragic to human liberty. Just ask the Chinese and the Soviets how good redistribution was to them. And the Cubans too.

    If you are smart enough to score 100 points on the Math test, you would nt love to give 25 points off your score to the 5 students who failed the same test, so that all can pass, would you ?

  10. okplayer, because two comments were directed at you I wanted to come in support of you – at least partially.

    You are right when you say something is fundamental to the success of capitalism. And it’s not so much govt facilitating equal distribution of wealth – it is an impossible task that can get corrupt very easily, India is an exhibit, it’s more that government can ensure everyone has an opportunity to get ahead with access to good education and economic opportunity and an economy that maximizes employment and hence letting people live productive lives.

    Also, the best way to let market benefit people is to let there be a free market. Only place where people work for the market is in a controlled market – they pay higher prices for shoddy goods and bad services only when they don’t have choices. And the first thing that a govt controls in controlled market economy is choices, however it’s spinned.

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