Review by The Economic Times: On constrained capitalism

May 28, 2011

by V RAGHUNATHAN, The Economic Times

In his book Consumptionomics (Infinite Ideas, 2011), Chandran Nair makes some important observations that Indian planners cannot afford to ignore. Perhaps each one of us who pay blind obeisance to the Capitalist God should do the same. Nair points out why the western model of development that has its roots in 18th, 19th and 20th centuries may not suit India (or China) in the 21st century. After all, the development of the western hemisphere was largely at immense cost to the development of their colonies.

The development of the West assumed limitless resources for the colonisers, since development of the colonies themselves was never an issue in a fragmented world where colonies were mere geographical spreads whose natural resources existed for the benefit of the European or English economies . In other words, the Industrial Revolution in the western economies and their consequent prosperity were possible thanks to severe underpricing of raw material sourced from their colonies (of which we were a giant one), as well as underpricing of labour — through slave trade, as well as indentured and exploited labour.

If we borrow the western model and western yardstick of development for our onebillion plus population, and aim for, say a car and an airconditioner for every Indian in the next two decades, would that be a realistic or a desirable aspiration to have? Let us see. Assuming an average of five members in a family, for a population of some 1.2 billion, we shall need 240 million cars. At an average of one tonne of steel per car, that is 240 million tonnes of steel, requiring about a billion tonnes of iron ore.

And the total iron ore reserves in the country are of the order of some 12 billion tonnes, give or take, with no colonies to supply us any iron ore using slave labour. And we aren't talking of the fact that these cars will have to be replaced every six, seven or eight years. And we aren't yet talking of the steel required for housing, factories , cellphone towers, the electric pylons, the rails, the trains, the planes, the tanks, the trucks, buses, and whatever ! Nor are we talking yet of what it would mean for petroleum price, which is already reigning well over $100 per barrel, or about the environment when a quarter of a billion cars in India alone will belch carbon monoxide into the environment.

We did discuss nearly a generation ago in our macroeconomics lectures that if India and China were to consume percapita energy at the same rate as say, Hungary, the world coal reserves would not last half a century. The assumption of limitless resources , which formed the basis of the western economic model, can hardly be applied in our context. Will a car and an air-conditioner for every middle-class household — that numbers some 300 million strong — be more realistic? After all, isn't our growth story mainly about 'India' growing at the cost of 'Bharat' ?

In the process , could it be that 'India' is doing to 'Bharat' exactly what the colonisers did to us collectively? That is, ripping away at our natural resources by underpricing them? If we were to price the cost of labour working in the factories , farms and mines based on fair wages — fair as in wages that include a dignified living wage, compensation for risky work conditions , compensation for health insurance, and fair retirement benefits — rather than the narrow legal definition of minimum wages; if we were to carry out our factory , farming or mining operations under dignified and safe working conditions; if we imposed emission restrictions strictly upon all factories and automobiles; if we insisted on true market prices for the agricultural land taken away from farmers for various projects; if we ensured clean and safe drinking water for all our uses; and if we desisted from giving away licences to politicians and their friends to dig for minerals at random resulting in large-scale degradation of land and forests, we would perhaps have an appreciation of the true extent of the implicit underpricing of many of the resources we consume.

Such underpricing can never be the basis for a sustainable and balanced growth of any economy under conditions of limited resources. All of this raises the question of what should be our national aspiration for our people ? Do we want our people to be well-fed , healthy and welleducated , who enjoy a functioning public transport system , living in concrete homes with a built-in toilet? Or do we want them all to have a flat television , an iPad and a cell phone, but no access to clean indoor toilets, trying to outhonk each other on narrow roads in their own cars in highly congested and polluted concrete jungles, with unaffordable and inadequate medical care, with a pathetic educational system in which government schools are synonymous with no education?

Should growth be measured in terms of the penetration of cellphones and broadband cover or growth in foodgrain storage facilities and functioning schools in every village , so that we do not have huge pockets of hunger, even when we produce more food than we need, because 30% of the food we produce goes to rot? Will the challenges of urbanisation be better addressed by more cars or better public transport? Hence, the need for constrained capitalism . These issues are far weightier than whether or not our IIMs and IITs are worldclass by western standards. The question we should be worrying more should be whether or not we are creating a world-class country for ourselves, using paradigms that are relevant to us.

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