Socialistic Pattern – True and False
The Tata Iron and Steel Co. Ltd., Chairman's Statement, August 25, 1955.
hile the necessity for bold planning is unquestioned, for the needs of the country are both great and urgent, some of the proposals are such as to raise serious doubts in one's mind. For instance, considering the resources likely to be actually available, can the proposed targets be attained without recourse to a much higher degree of deficit financing than at present contemplated, with the consequent risk of inflation, which would deprive the mass of the people of the fruits of their toil?
Will not the large-scale development of heavy industry at one end and of cottage industries at the other, without adequate consumer goods industries in between lead to a lopsided pattern of development with resulting inflation, and scarcity of consumer goods?
Is it wise to attempt to reverse the normal historical process in which the establishment of capital goods industries has followed and not preceded the development of consumer goods industries?
Will the consumer be willing to be deprived of the lower priced goods produced by organised industry? Finally, is it realistic to assume that household industries can be developed fast enough to provide the additional consumer goods necessary to meet the increased demand? I would urge, while there is still time, that these important aspects of the problem be considered before the Second Five Year Plan takes final shape.
We have the goal of a 'socialistic pattern of society' set before the country. If it means a society in which all have equal rights and opportunities, the underprivileged are protected and helped to a better life, economic activities are harnessed to constructive nation-building purposes and selfish abuses and anti-social acts are checked, we should all support it.
But if it means a society in which individual enterprise and initiative are discouraged, most of the industrial apparatus is owned by the State, economic power is centered in the hands of the government, and the individual loses freedom of choice, whether as producer or consumer, it will, I submit, not only be an inefficient society incapable of producing at low cost the volume and quality of goods and services required by our people, but it will also be a regimented and undemocratic one, which all freedom loving people should reject.
Surveying these various trends in the country, one finds running through them two major currents of thought. The first is the belief that the profit motive or the desire for material rewards for individual effort, which has throughout characterised man's progress is, per se, anti-social and can be replaced without loss of productivity by a selfless desire on the part of everyone to work solely for the good of the community. The second is the claim that socialism is the only equitable path to prosperity.
Apart from the fact that there is nothing morally wrong and much good in individuals yearning to better their own and their families' living conditions and to seek material reward and financial security in return for productive effort, a remarkable aspect of the disparagement of material incentives and rewards is that, while they are regarded as unobjectionable in the peasant and the worker, they are condemned in the professional man, the administrator, the manager, the entrepreneur and the investor – the very men from whom can come the initiative and leadership required for the success of the country's plans of economic development. In their case, incentives and rewards are sought to be replaced, it seems, only by a missionary zeal to serve the community.
While it is true that many of the men who today lead the nation have dedicated their lives to its advancement and are motivated by a noble ideal of service, it is unrealistic to believe that more than a minute percentage of the people of the country in any walk of life can be expected wholly to eschew their personal interests and needs.
For the vast majority of the people, the removal of material incentives and rewards will merely act either as a disincentive, to work and produce or as an incentive to earn illegal rewards. We should face the fact, whether we like it or not, that most men will be driven to hard work only by material reward or fear, or a combination of both.
Faced as we are with the imperative need to work, to produce, to build, to save and to invest, is it wise to level down incomes before we have created a reasonable quantum of wealth to distribute equally?
A particularly unfortunate consequence of going too far in the direction of reducing earnings is the discouragement caused to foreign capital, which might otherwise play such an important part in helping the development of our economy.
Modern capitalism has changed beyond recognition from what it was a century ago. It has shown a remarkable capacity to fit into the most modern concepts of the welfare state, while creating wealth and prosperity unprecedented in human history.
There is overwhelming evidence that the conditions of living in Western Europe are far better than in Eastern Europe and also that their rate of post-War recovery and economic growth is greater. This contrast can best been seen in a visit to East Germany as well as West Germany. Though both these zones were equally damaged during the War, the striking disparity which exists today in economic activity and in the standards of living of the people is there for all to see – a West Germany humming with activity and abounding in consumer and capital goods of all kinds, where the Government has actually had to warn both management and workers not to work so hard and so long; an East Germany, where conditions are visibly worse than across the border and where small producers restrict their output in the fear that the fruits of their enterprise will be taken over by the State.
A tremendous opportunity for rapid development within the framework of a free and democratic society now exists for us to grasp. On the choice of the means and methods of achieving our objectives will largely depend the success or failure of our Plans, and in our hurry and impatience to get quick results, let us beware of the temptation to jettison economic systems or working philosophies based on human nature which have stood the test of time.
The Growth of Governmental Power
The Tata Iron and Steel Co. Ltd., Chairman's Statement, August 30, 1956.
Nearly fifty years ago, Woodrow Wilson said:
'The history of liberty is the history of the limitations of Governmental power, not the increase of it. When we resist ... concentration of power, we resist the powers of death, because concentration of power is what always precedes the destruction of human liberties'.
We are witnessing in India an uninterrupted growth of governmental power in the economic field and are already well on the way to a strange and unnatural combination of political democracy and economic autocracy. The question that should agitate the minds of all of us is whether our political freedoms can long survive if our economic freedoms continue to be whittled away. Once all economic power is centered in the Government, will it not be found equally necessary to curtail other freedoms in the interests of the State? Although there may be no danger that the men in power today, motivated as they are by democratic ideals, will abuse their powers, history shows that the danger lies in the very existence of unlimited power which may one day fall into less worthy hands.
At the Crossroads
The Central Advisory Council of Industries, New Delhi, August 13, 1965.
If I am an optimist in the long-term, it is only because I hope, against hope, that sooner or later our Government and Planning Commission will change their ideas and policies! As a matter of fact, if there has been a little less optimism during the first three Plans, we would not be in the situation in which we are today.
It is not the targets of growth set forth in the Plan that I question, but the validity of the strategy of growth adopted. I have advocated, along with others, that our Fourth Plan should be spread over a period of seven years and that the first two or three years should be treated as a period of consolidation. Ours has been dubbed the voice of doom and our plea for consolidation has been interpreted as a plea for stagnation. Nothing could be further from the truth.
Consolidation does not mean a pause or a holiday in planning as has been argued, nor does it mean slashing Plan expenditure overnight. It merely implies a change in timing, in the rate of planning and in the composition of the investments during the first three years. Consolidation is wanted not to slow down but actually to speed up development. The very purpose of consolidation is, in fact, to accelerate expansion through building a firmer base for a later decisive breakthrough.
The effective execution of a Plan is what counts and not mere planning on paper; it is not what we put on our plate or even what we eat that provides nourishment and growth, but what we digest; every factory that produces only a part of its potential output, every partially completed project held up for want of cement, steel or power, every ton of food that is lost owing to lack of storage or pest control, every ship or wagon idle for want of a birth or siding, every item of import that might have been avoided by better planning, all constitute an unnecessary and costly drain on our scarce resources. Unless we first achieve these basic preliminary aims, there is, I fear, little hope for the country's progress and for a better life for our people.
We are, today, at a crucial crossroads on our march towards a better life for our people. If we go charging up the wrong road, as we seem to be planning to do, we shall impose on the country hardships, frustration and possibly economic chaos from which it will take us many years to recover. If we take the right roads and follow them in an orderly manner like a well-led army which takes good care as it moves forward to secure its flanks and communications and ensure that each assault has full logistic support, we shall perhaps advance more slowly at first, but we shall reach our ultimate destination quicker at less cost.
Resource Based Planning
The Tata Iron and Steel Co. Ltd., Chairman's Statement, June 30, 1966.
The concept of planning itself must change fundamentally. All these years, our Planners have followed the practice of first determining the magnitude of the investment required over a five-year period to produce the volume of goods and services which, in their wisdom, they considered necessary and then looked for possible sources of funds. Not only was no margin provided for possible mistakes, delays and unforeseeable setbacks, but also no allowance made for the dwindling purchasing power of the rupee during the period of the Plan. If available resources are found inadequate, the Plan is not trimmed but a resources gap is hopefully accepted as a necessary evil. If any individual prepared his family budget in such a manner, he would soon land in a bankruptcy court and possibly in jail.
While no one disputes the almost unlimited needs of our people, it should be clear by now that this type of extravagant and unrealistic planning has not only failed to provide the people of India with improved living standards, but by encouraging inflation, has given them virtually nothing in return for their sacrifices and in the case of the middle classes, who form the backbone and strength of any nation, has actually reduced their standards of living.
Our planning must change therefore to one based on existing or obtainable resources and not on targets. Furthermore, some of the available resources must be left, in the form of investible savings, in the hands of the investor. What has happened up to now is that not only have total resources been inadequate to finance excessively large Plans and have had to be supplemented by lethal doses of deficit financing, but the corporate sector and the investor have been starved of the funds required to operate fully and expand existing industries, let alone create new ones.
Unrealistic and wasteful planning, excessive bureaucratic controls and expropriating taxation have been the three principal factors responsible for our present economic plight. Of the three, the last two have been the most damaging to the private sector. The failure of these policies is today so evident that surely the time has come for a fundamental reappraisal of our economic thinking. Having shown courage and realism in deciding on such an unpopular measure as devaluation, let us hope that our Prime Minister and her colleagues will show equal boldness and wisdom in setting a new economic course in regard to controls and taxation. The risks are small in comparison to the rewards, which I am convinced the freeing of the economy from unnecessary controls, and a reduction in taxation would bring about. The example before us of the result of such policies in most of the countries of the West is there for all but the most obstinately blind to see.
In my remarks about the general economic situation, I have referred up to now. only to the role of the government in reviving the economy. The business community in general, and the private sector of industry in particular, have also an important role to play. It will be up to them to take full advantage of liberalised maintenance imports to increase production as rapidly as possible and to decrease or control their costs.
In those industries not subject to price controls, they will have a heavy responsibility in holding prices down to the pre-devaluation levels or as near to them as possible. Newspaper advertisements by a large number of companies, announcing their decision not to increase prices, provide an encouraging sign of a sense of responsibility and patriotism amongst an important sector of industry. I hope that others will follow and that in their treatment of individual industries or companies, the Government will take into account their behaviour at this time of national crisis.
Change the Prescription
The Central Advisory Council of Industries, New Delhi, October 14, 1966.
May I suggest that the time has come when, after fifteen years of experience in planning and controlling our economy on certain ideological principles, we should now take stock and review our past achievements and failures before we choose the road we shall follow in the future.
Again and again we have been told that our basic aim is the establishment of socialism, which alone can achieve the prosperity and welfare of our people. Socialism, however, has followed many different paths throughout the world. The form of socialist planning which we have chosen has been largely based on the Soviet model characterised by total planning, rigid controls, emphasis on heavy industry, and particularly on monumental projects and the determination to make the public sector the dominating one at all costs.
Are there not lessons to be drawn from the fact that perhaps by mere coincidence, or perhaps not, by and large those countries in the West and in the East who have substantially adopted our pattern of socialism have made the least economic progress and suffered the greatest tribulations, whereas others in the East like Japan, South Korea and Taiwan and in the West, Germany, France and Italy, have achieved a far greater rate of growth and widely distributed prosperity?
Even the most hidebound physician is prepared to change the treatment or diet he has previously prescribed if he finds that the patient does not respond to it. There is today no sign that our own doctors in the Planning Commission and in the Government are similarly prepared to change their economic prescriptions. On the contrary, the Fourth Plan and the Congress Manifesto, both promise us nothing but more of the same medicine to quench the inflationary fever that burns us and to relieve the pressures and strains to which we are subjected. I suggest, at this stage, nothing more than that we should make an unprejudiced, factual and objective assessment of our economic progress or lack of it, during the past fifteen years and of the effectiveness or deficiencies of the means and methods we have adopted up to now in shaping our economic destinies.
Let us, by all means, have the courage of our convictions but let them at least be based on facts and realities and not on dogma.
Six Economists, Seven Opinions
The Ahmedabad Management Association and the Ahmedabad Economic Association, January 27, 1967.
In much of the world, planning has become The Holy Grail' of the twentieth century and in new or developing countries it is almost as much a symbol of national independence as the National Flag. Yet, few planned and controlled economies have achieved high economic growth rates and the planning ship has too often floundered on the rock of implementation realities.
Unfortunately, in India, public interest and passions have up to now been aroused more by political, religious, linguistic and philosophical issues than by economic ones, although it is on them that the welfare of the people mainly depends. Furthermore, the economic policies have been left, on the one hand, to politicians largely ignorant of, or disinterested in economic questions, and on the other hand, to theoretical economists.
Clemenceau once said, 'War is too dangerous to be left to the Generals.' From our experience of the last fifteen years, it would be equally apt to say that 'politics are too dangerous to be left to the politicians and economics to the economists.' In the case of the latter, not only because, as the saying goes, six economists are likely to express seven different opinions, but because in India the economists concerned with the formulation of our Plans have been selected mainly for their Leftist leanings more concerned with introducing socialism than implementing Plans of economic development.
Should we blame deficient implementation or defective planning for these failures? The answer is obviously both, but I for one believe that we have suffered up to now more from wrong and over-ambitious planning than from the wrong management of our Plans. A good Plan can fail through bad implementation, but a bad or unrealistic Plan can never be made effective through good management.
The advocates of need-based Plans, irrespective of financial and managerial resources, have failed to realize that an unduly large Plan is self-defeating.
Missing the Target
We in India have come to know only too well the bitter truth of the warning uttered by Professor W Arthur Lewis. on the dangers of over-ambitious planning, when he said:
'It is very important that the target of national income growth be estimated without illusions as to what is possible .... If the targets are fanciful, the whole Plan will be fanciful .... Planners who promise more than they can perform throw everything out of gear, so that the economy might just as well not be planned at all.'
An over-large Plan, and particularly one specially weighted in favour of capital intensive development with long gestation periods, inevitably generates inflation and imbalances in the economy, which upset both the time schedules and the cost of the various projects it contains and, in turn calls for a whole chain of physical controls, which themselves waste scarce administrative resources.
A very large Plan containing huge projects creates equally huge managerial problems. While a highly developed and industrialised country can find, ready-made, the necessary managerial resources, they have to be created from scratch in underdeveloped countries. All those here, with practical experience of industry know how many years it takes to develop management skills and experience. As a result, many great schemes of industrial development established at immense cost to the country under our Plans have failed literally 'to deliver the goods' and may never give an adequate return.
Many, if not most, of our present troubles have been due not only to poor implementation but also to unsound planning, and specifically, to wrong priorities and unattainable targets. This brings to mind Laxman's delightful cartoon in which a Sergeant instructor at a rifle range, infuriated by the poor shooting of an inept Jawan, asks him: "What do you think this is – The Planning Commission?'
It is worth noting that even Soviet Russia and other communist countries of East Europe, on whose concept of planning we have largely based our own, have found, after decades of planning, that in many areas of their economy the magnitude and complexities of their Plans and the stresses and strains imposed on their economy have been so great as to bring about in some cases, a virtual collapse of the administrative machinery and of the Plan itself. As a result, we have seen first in Yugoslavia and now in Czechoslovakia the efforts of the administrative machinery being concentrated on the implementation of only a few selected key targets, while the remaining areas of Plan implementation are left increasingly to the forces of demand and supply. They have found out the hard way that there is no need to lock up valuable and much needed administrative resources in these areas and it is better and simpler to leave the achievements of these secondary targets to natural economic forces.
Making Plans Work
There must be an end to the repeated annual exercises in fiscal experimentation inflicted on the country year after year and some reasonable stability introduced in our tax structure. In the case of personal taxation, substantial relief is long overdue, particularly in regard to the extremely low income slabs at which very high rates of tax are reached. It makes no sense to tax private investors out of existence, divert all savings into government channels through taxation and compulsory deposits, and then dole them back as loans to the private sector through one or other of the Government's financial institutions.
Although we have made substantial progress since national planning was introduced fifteen years ago, our annual growth rate of 3.9% over the three Plan periods is modest when set against several Asian countries, particularly Taiwan (8.1%), Thailand (6.1%) and even the Philippines (5.4%). Even more woeful is the fact that our failure to implement effective birth control measures has reduced our annual growth rate per capita to barely 1.8%. At this rate, according to the Economic Commission for Asia and the Far East, it will take one hundred and thirty-seven years for an Indian to reach the current level of income of a Japanese.
What we require now is a Plan that is selective rather than comprehensive, so as to concentrate our limited financial and administrative resources on the quickest possible achievement of priority targets. We need a Plan that relies more on incentives than on controls, the value of which several communist countries have now discovered. It is true that economic growth cannot come without toil, tears and taxes, but surely not with all of these, all of the time. There must be a respite from inflation and taxation; there must be, equally, some respite from heavy investments with low employment potential and long gestation periods so that the people at large can see the fruits of planning come to them in their lifetime in the shape of increased employment and consumption.
Good company management knows when it has overdrawn on its resources. It does not overextend further. It regroups its assets, financial and managerial. After every period of rapid expansion, it consolidates and during each such period, tries to give its shareholders some reward for their patience. On this analogy, the managers of our national economy should also consolidate progress after every fresh advance and allow the people to share in some of the fruits of their sacrifices before imposing fresh ones on them. If our future Plans are to be effective, they must create in our people a sense of personal involvement and participation, a feeling of individual and corporate responsibility for its success and, above all, succeed in stimulating and arousing enthusiasm to work together in a common effort towards a future in which our hopes for a better life do not become a mirage and a delusion.
Winner of the Nobel Prize for Economics, 1979.