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All about saving capitalism

October 25, 2008 11:52 IST

The old saying that there's an empty chair for John Maynard Keynes at every meeting of India's cabinet comes to mind as Britain rediscovers the economist who urged governments to act against recession in the short term because 'in the long run we are all dead.'

They are even more adventurous across the Channel where Karl Marx's Das Kapital is climbing bestseller lists in Germany, France and even the Vatican.

What this means is that people are beginning to realise, in Gordon Brown's words, that man does 'not live by markets alone.'

Manmohan Singh's 10-point social charter for 'a new partnership for inclusive growth' made the same point to the CII last year.

The world needs what Ronald Reagan eulogised as 'the magic of the marketplace' since the state's stranglehold does not allow creativity and dynamism to flourish. But a viable market cannot survive in isolation from the values that sustain family and society.

Singh's CII address was strikingly similar to a famous 1959 speech by Aneurin (Nye) Bevan, founder of Britain's welfare state and author of the phrase 'the commanding heights of the economy', so beloved of Jawaharlal Nehru. Bevan called "the so-called affluent society" ugly. 'It is a vulgar society,' he thundered.

"It is a meretricious society. Modern capitalism has not succeeded; it has failed." This was an extreme view, for the Welsh miner had grown up in a hard school where socialism alone promised escape from exploitation.

That was also Sidney Webb's reason in 1917 for drafting Clause 4 of the Labour Party's charter (Tony Blair removed it in the nineties) promising workers 'the full fruits of their industry and the most equitable distribution … upon the basis of the common ownership of the means of production, distribution and exchange . . .' It was the blueprint for nationalisation, in Britain and India.

Britain may be a negligible factor nowadays but many of the ideas the world plays with as it teeters on the edge of crisis originated there, and Brown has successfully sold a Keynesian prescription for recovery to the much bigger US and European Union economies.

India, also facing danger since we, too, trade with the West, seek Western investments and hold our reserves in dollars, may not need to be warned of the peril of a financial jungle left to its own devices.

But proper supervision might have spared Bengalis the cruel choice between 'ata' and Tata, as a Singur graffito claimed. Central to Brown's recipe is the warning that man being a predatory animal, the private sector needs firm but understanding guidance if it is to benefit all, and not just a few operators as during the Decade of Debt when banks ran amok.

But imagination mustn't run away with stereotypes. Just as democracy as a system of governance cannot be rejected because many democrats are callous or corrupt, neither can capitalism as a means of harnessing talent and resources be repudiated because many capitalists are motivated by greed.

The alternative of Big Government monopolising everything from making bread to running airlines denies scope to individual talent, saddles the public exchequer with huge unproductive enterprises and vests the bureaucracy with inordinate power.

It encourages political corruption and, in India, evolved and sustained the evil of the licence-quota-permit raj. Controls were responsible for the stagnation of the Hindu rate of growth.

As the farce of West Bengal's Nano that never was illustrated, good economics demands sound politics. The profit motive cannot be separated from social responsibility. Growth is never sectoral. Nor is it synonymous with tax avoidance. Corporate life cannot be isolated from the rules that determine societal relationships.

Whether we like it or not, India's heightened political consciousness -- and this, too, the Nano episode highlighted -- demands that the laws needed to attract investment, mobilise factors of production including land, draw their best from labour and ensure that industry is globally competitive must be the product of consensus.

Compulsion will not work.

The threat of a systemic meltdown exposes the weakness of unbridled free markets. It is a reminder that Japan, South Korea and Singapore achieved spectacular growth through controlled liberalisation.

Lagging far behind, India has the time and opportunity to consider the fundamentals of capitalism with an acceptably human face so that political parties do not find it an embarrassment.

That calls for regulation, not a return to autarky which would be jumping from the frying pan into the fire. Let's replace the chair then for Keynes while relegating Marx to the library shelves of unread books.

Sunanda K Datta-Ray