Industrialisation Hai? (2)

In the first post, I gave you an overview of what I've learned about the political economy of development in India. This post covers the first of three related major debates that I'm interested in or are overly discussed:

1. market vs. state
2. what empirically leads to industrialization
3. the difference between "development" and "development"

I would argue that number one is a red herring. Ideologies come and go--before, it was socialist planning, now it's liberalization. It masks two, more real, arguments, I'd say, in the same way that ideological disputes among the Indian statebuilders at independence masked the fact they were ALL part of the Indian elite (caste-wise, education wise, power-wise). However, in the interests of laying out the details:

In short, markets are good at providing discipline (i.e. you go out of business if you can't compete) but bad at long-term investment in creating or upgrading industries in terms of their technological and organizational competitiveness. The Indian state, at least, proved good at providing long-term investment in industry, but not good at ensuring that the subsidies didn't become monopoly perqs for businesses, rather than an incentive for industrialization.

The minimal amount of looking into India's political economy I've done has exposed exactly how flawed the recommendations of neoclassical economists have largely been. The idea so prevalent today that if you just 'remove' political interference and let the market work ignores basic realities of developing countries (like they might not have a functioning market or state yet and that they're condemned to remain extremely poor if you focus on sectors that they have a 'comparative advantage' in because there's a difference between growth and industrialization, as kawaa pointed out earlier)

Prioritizing the elimination of corruption (i.e. "good governance") in a political economy in which political buyoffs are necessary--sort of like in every other country, including the U.S.--seems unrealistic at best and destructive to the political process that you need, at worst . 'Liberalizing' a formal market that exists to varying extents, including "not at all" in some parts of the economy, is a lark--what kind of 'market' relies extensively on the government and business colluding to expropriate land from peasants to build industrial parks? That doesn't sound like market theory to me--it sounds like primitive accumulation, Marx style. Focusing on areas where you have 'comparative advantage' - i.e. what you can do now and sell to a global market-- to the exclusion of long-term investments in things you MAY be able to do in the future results in short term growth, long term nothing (unless you use the surplus to reinvest in projects and industries that won't be profitable for a long time, and the free marketeers would have the state doing none of that). See some of the writings of Mushtaq Khan; he's fairly pragmatic).

So these are the critiques of market-based 'development' - in that it's even less likely to result in development, though it may result in GDP growth. There are, of course, critiques of state-led development also. In South Korea, which is held up in development circles as the example par excellence of state-led development, it's accompanied by massively authoritarian rule for decades (see Atul Kohli on South Korea), both during Japanese colonialism and afterwards. But in an Indian context, it has to do with the stuff that was raised in the comments thread I pointed to in the first post- excessive bureaucratic control that doesn't lead to moving on up; you can describe this as a problem of the state being unable to 'discipline' firms. Because of the wrong kinds of restrictions or incentives, probably produced by underlying social and economic constraints as well as simple policy or ideological mistakes, the state might be unable to succeed at actually doing the things it's been charged with.

A lot of this likely relates to the political structure and therefore social basis of the state, though (see, for example, Pranab Bardhan or Hamza Alavi on India and Pakistan respectively).  Similarly, the extent to which "the market" is adopted (as opposed to a pro-business strategy) is today largely reflective of how much poor countries have had to cede policy autonomy to the U.S./IMF/World Bank/etc. in determining their policies, whether or not such a market exists. As described above, it has little or nothing to do with market theory.  This, in short, whether the Indian government "chose" the market or the state has little or nothing to do with the pragmatics of development.  What has been more important than this particular ideological debate on policy is the interaction between social structure, political policy, and geopolitics.

The next post will discuss what actually leads to industrialization and a very brief comment on the consequences of industrialisation for different segments of society.

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