Quick Infrastructure Growth Is A Must To Solve Economic Disparities

Companies seeking to be successful will orient themselves not towards the largest markets, but to those which are the easiest to get a buck out of and the easiest to sell into.

STEWART KLEGG

INDIA’S GROWTH is an interesting subject. But any system that has a small oligarchy atop of it can produce enormous distortions. Markets respond to effective demands and if the effective demand is constrained to a small volume for highly expensive luxury goods then that’s what the market will seek to supply because that’s where the profit is. Entrepreneurs and companies which seek to be successful will not necessarily orient themselves towards the largest markets, but to those which are easiest to get a buck out of and easiest to sell into. You can see these distortions in Russia, with their oligarchs, you can see it in India and you can see it in China.

India is often compared with China. But China is country with a highly repressive State apparatus. If you wanted to find historical precursors or parallels to China you’d probably would have to look at the Statist Corporatism of the fascist States that flourished in Europe between the first and second World Wars as well as in the case of Portugal and Spain after the war. Well, not really the case of Portugal and Spain, because they were rather backward, agrarian and clerical, but probably something more like German fascism where you have extremely strong State control of the economy and State control of labour.

Why are Chinese consumer goods flooding the world? For two reasons: one is that even though it’s ostensibly a workers State they can’t form unions; the exploitation is very systematic indeed and, of course, the currency markets are structured in such way as to make Chinese goods cheaper globally. India, by contrast, is a democracy. It’s a very imperfect democracy, but all democracies are. So, the State form is wildly, vastly different. The opportunities for getting wealthy in China through connections to the political elites are very, very deep. To the extent that there is a degree of functioning democracy in India, clearly, it’s oligarchy dominated; we can see this in the familiar dominance of some of the parties.

I think this is an interesting point of contrast with China. If you were to ask sophisticated observers of the business scene, people in business schools generally in Europe or Australasia to name at least one Chinese home-developed brand that was going global, they probably couldn’t do it. But you could do that for India. Corus and Tata are very well known, they are projecting modern India, globally. But I think the important difference is that when the Chinese try to develop own brand manufacturing or marketing they tend to buy up companies which have already got some brand recognition elsewhere. There isn’t a sense that the Chinese firms are going from their domestic place to a global positioning on the back of that domestic base, in India that is different.

BUT INDIA needs to set its agenda right. Displacement, I think, is a big issue. How it gets to be handled is deeply problematic. There is obviously a kind of almost feudal legacy in terms of the structure of land owning. A very small number of very wealthy families own large chunks of the land on which people farm often in very, very poor circumstances. You wouldn’t solve anything but nationalising the land and giving it to all of the peasantry. You'd probably remove a source of wealth from a small strata of society but it wouldn't necessarily reform the conditions of existence of the remaining strata of society; you'd only displace a set of problems.

Special Economic Zones are another issue. SEZs were enormously influential in Chinese development. It, in fact, helped form the basis for the lift off of the Chinese economy after the Cultural Revolution. So SEZ can be really, really important. I think for a developing economy they would look like the way to go. You have to be sure, however, that you have all the infrastructural pieces in place. You have to have good roads, ports, rail links and modern communication technology to be able to service them. You don’t just go putting them somewhere because political support for the party is waning a bit in this area so we give them a special economic zone and that helps to sure up a party in a particular area. There has to be some rational, technocratic basis to their creation.

Klegg, an author and renowned economist from Australia, spoke to Morgan Harrington in New Delhi.