Affirmative Disintegration; India's Most Dangerous Decade

In the latest act of a long political tragedy, another Indian government has fallen as a result of the communal and caste frenzy unleashed by its vote-mongering policies. The coalition gov ernment that has replaced it is not expected to last long. The situation, uncannily, seems to bear out the gloomy prognostications of Selig Harri son's influential 1960 book, India: The Most DangerousDecades,on the disintegrative forces of caste, region, religion, and language on India's ability to remain united. It seems that ProfessorKamath teacheseconomicsat CaliforniaState Universityat Hayward. India's "most dangerous decade" has arrived. While the causes of the tragic events unfolding in India are complex and varied, there is a common denominator that is insufficiently appreciated. Since India won its independence in 1947, social and economic policy has been dominated by statism. An all-pervasive network of controls on the private sector combined with a framework of centralized planning and an emphasis on public sector activity have stunted economic growth in a land of tremendous human and naturalresource potential. Confiscatory tax rates along with ever escalating controls have led to the growth of one of the largest and most thriving underground economies in the world, estimated to account for 50 percent of economic activity.Prohibitive tariffs and a policy of inward-looking "self-reliance"

have insulated the economy from foreign compe tition and investment. Besides preferential policies many times more comprehensive and detailed than similar U.S. affirmative action programs, social policies have included statist labormarket and employment policies, government control over the· broadcast media, and socialistic educational and housing programs. These have gone hand-in-hand with the unrestrained growth of a bureaucratic, redistribu tive state. Over 20 million Indians are on the public pay roll, and around 70 percent of all organized sector employment is in the public sector. The govern~ ment's wage bill accounts for two-thirds of its annual revenues. During the past 40 years, the public sector has accounted for about 60 percent of total investment. India's jungle of red tape is said to be one of the largest and most complex in the world. The result of such a statist development policy has been the neglect and systematic suppression of market activity.Private property rights and vol untary transactions have been severely circum scribed. Anemic rates of economic growth have been the direct result of the suppression of market forces amidst increasing population pressure, ris ing expectations, and burgeoning powerful special interest groups. These interest groups have competed to commandeer the redistributive powers of the state in their favor, despite sporadic recent attempts at economic liberalization. The tragic events of recent months have been the pre dictable result.

The caste violence and deaths unleashed by then -Prime Minister V. P. Singh's decision to implement the findings of the 1981 MandaI Com mission Report for extending the ambit of India's preferential policies is a case in point. India's 1950 Constitution enshrined the concept of restitution for the "untouchable" castes by allowing the state to "make special provisions for the advancement of any socially and educationally backward class es" and to make "any provision for the reservation of appointments or posts" in favor of such back ward classes in the services under the state. Some 1,765 different groups in India's complex and locally variegated caste system, comprising about 17.5 percent (increased to 22.5 percent in 1970)of the population, were classifiedas "Sched uled Castes" and "Scheduled Tribes." Quotas in central government employment, legislative rep resentation, education, and numerous other areas were provided by statute. Individual states set up their own "reservation" policies with much higher quotas, in some cases up to 80 percent of govern ment positions. All this was done despite the inability of government committees to come up with clearly defined criteria for identifying the tar geted groups.

Subsequent events have borne out the unin tended consequences of the decision to put social justice in the political commons. While quotas at the state level proliferated, political pressure for similar policies for the "Other Backward Classes" (OBCs) led to the MandaI recommendations. By its own admission, the commission was unable to define clearly the criteria for identifying OBCs. When Prime Minister Singh saw his fragile 10191 month-old coalition government on the verge of collapse, he decided to create a "vote bank" by implementing the MandaI recommendations. By doing so, he hoped to command the backing of about 60 percent of the electorate, the total num ber of "reserved" seats now comprising 22.5 per cent for the Scheduled Castes and Tribes, 27.5per cent for the OBCs, with another 5 to 10percent for the poor. The resulting "anti-reservation" riots have been the outcome of this policy of making politics dominant and the market subservient.

The communal frenzy that has engulfed the nation in recent months is also linked to the dom inance of politics over economics. While the 1950 Constitution declared a secular state, political par ties have used religious affiliation as a powerful force to gain and hold power. The lack of sustained economic growth.and employment opportunities, accompanied by a rapid increase in the numbers of educated but unemployed young people, has con tributed to the rise of religious fundamentalism. The most recent strife has been caused by one of Mr. Singh's coalition partners, the militant Hin du Bharatiya Janata Party (BJP), which has spearheaded a drive to build a Hindu temple at the site of a 450-year-old Moslem mosque in Ayo dhya, the legendary birthplace of Lord Rama, the Hindu deity. Events were precipitated by Singh's decision to implement the MandaI recommenda tions, which the BJP saw as a serious threat to its very existence and its strategy of building a united electorate of Hindus, who comprise about 83 percent of the population. It saw the Other Backward Classes reservation decision as divid ing the Hindu vote. In turn, Moslem leaders have raised the specter of Hindu dominance in the face of severe job competition in a stagnant job mar ket and an unsympathetic bureaucracy. The BJP led march to and temporary occupation of the mosque at Ayodhya prompted a nationwide out break of communal frenzy and the collapse of Singh's coalition government.

The same denominator underlies the events in Kashmir, Punjab, and the northeastern states. The redistributive and statist policies of previous governments led to an on-and-off policy of dis tributing state largesse alternating with the under mining of democratically elected governments in these states. The violent demands for secession provide a paradigmatic example of an effort by regional elites to wrest the coercive power of the 192 THE FREEMAN • MAY 1991 state in order to gain political and economic pay offs. Thus, since gaining independence in 1947, India has been epitomized by the replacement of individual pie-enlarging behavior with interest group oriented pie-slicing behavior. Recent attempts at liberalization have only led to an escalation of fragmentation and violence, since no fundamental changes have been made to restore a market order. Such fundamental changes would involve an acrossthe-board scrapping of all controls over the domestic economy and foreign trade and invest ment, the dismantling of the nihilisticplanning systern, a drastic reduction in the bureaucracy, a restoration of absolute rights to private property and voluntary exchange, and a comprehensive reliance on market forces in every facet of daily life. A constitutional convention to limit the pow ers of government and guarantee a decentralized, truly federal system of government is also urgently needed. The objective should be to make eco nomics dominant and politics subservient.

Given the political economy of the redistribu tionist society and the entrenched interest groups and violence, such an outcome is unlikely.But the alternative is the continued unfolding of India's most dangerous decade. D ECONOMIC FREEDOM AND INTERVENTIONISM An Anthology of Articles and Essays by Ludwig von Mises Selected and Edited by Bettina Bien Greaves Forty-seven of the pre-eminent Austrian economist's shorter pieces, all written after Mises came to the U.S. in 1940, gathered from many sources into a well-organized and annotated collection. Topics include: • the importance of private property • savings and investment • Keynesianism • the proper role of government • interventionism • the dangers of inflation • Marxism • bureaucratic management All around·the world, longtime advocates of economic planning are being forced by circumstances to admit that their policies haven't worked. This book sets forth, with inescapable logic and clarity, the reasons why. It also shows how capitalism, with its democracy of consumers, helps to reduce conflicts and point the way to peaceful human cooperation.

Plus: Mises' original evaluations of ~ A. Hayek's The Constitution ofLiberty, Murray Rothbard's Man, Economy, and State, Israel Kirzner's The Econom ic Point of View, and Hans ~ Sennholz's How Can Europe Survive? 263 pages,indexed ORDERTODAY The Foundation for Economic Education 30 South Broadway Irvington-on-Hudson, NY 10533 Phone: (914) 591-7230 FAX: (914) 591-8910 Cloth: $29.95 Paper: $14.95 METHODSOF PAYMENT • Check or money order payable to The Foundation for Economic Education. • Credit card-VISA or MasterCard Please give your full credit card number, expiration date, and signature.