Friday, 30 May 2014

Nehru's Economic Policy

This is a link to an erudite article on Nehru's Economic Policy which is misleading precisely because it is erudite; erudition being, as our folk wisdom has it, the thing that most makes one stupid and blind.

Mathematical Growth theory and Capital theory are inherently silly. Let that Silliness feed into how National Income is calculated and you have permanently increased the noise to signal ratio for Everybody in the Economy- i.e. a bunch of eggheads, who should have stayed in Cambridge buggering with each other's brains to get into Wittgenstein's good books, manage to permanently harm the Economy by at least a couple of percentage points of GDP.

It's simply crazy to let a Physicist like Mahanalobis, or a Cambridge graduate of any description, near Econ policy. Vishveshvarayya was an old fashioned engineer turned Diwan. His thinking was simple. Govt. picks a smart guy- like Kurien for Amul- who has an engineering or similar qualification and puts him in charge of a project- be it irrigation or Milk production or whatever. The technocrat gets a pragmatic grass-roots type political backer who can broker deals with stakeholders. Finance Ministry commits money. Those guys who do well get more money. Other who talk who a good game but can't deliver are quietly shunted off to Academia.
I suppose you can call this 'Industrial Policy'. Why bother? Just let it happen and don't give it any fancy name because ordinary blokes understand it immediately. It's Nation building is what it is.

Like the pre-war U.S. Dept of Agriculture which did a truly spectacular job just by keeping a low profile and acting locally; under this informal rubric, you have a lot of local initiatives and innovations being supported by a decentralised Govt. bodies- so this is a type of Public Sector entrepreneurship whose gains remain in private hands- and thus which entails no bureaucratic rent contestation. The wider co-ordination and Capital allocation problems can increasingly be left to the market with the Govt reserving a signalling functioning to itself and only stepping in if there is Market failure.
Vishveshvarayya wanted 10 per cent growth. That was back in the the mid Thirties. He saw there was no bottleneck in terms of educated youth or Social Mores of the sort that had existed when he himself was a young man. Furthermore it wasn't really the case that India had stagnated. Parts had sunk down, other had shot up- everything depended on Governance- but, perhaps foolishly, Vishveshvarayya and others of his generation thought that Independence would mean that the supposedly public spirited lawyers- Jinnah, Nehru, Patel etc- would fix the Criminal Justice system, fix lacunae in the Law relating to Property and Inheritance, impose equitable Taxes and thus improve Governance.
They didn't. 
The industrialists behind the Bombay Plan, which wasn't really a Plan at all, scaled down the target to 7.5 percent so as not to attract the wrath of the Socialist/Gandhian nutjobs but still got a bad scare from Liaqat's alliance with the Left- which Indira Gandhi was to repeat so as to cut her opponents down to size.
The author mentions the charismatic charlatan, Alexander Gerschenkron, and calls him Russian.  True, he was Russian born. So were a lot of other smart Americans, like Nabakov, who moved on from Germany or Austria after the rise of Hitler.  Like Polanyi who, being a foreigner, didn't understand England and so got the Speenhamland system wrong, Gerschenkron wasn't German and got German industrialisation wrong.  Investment Banks didn't just emerge out of nothingness. There was a long history of Princes working with Bankers, including Jewish Bankers, to develop their demesnes employing Technocrats like Count Rumford and Actuaries like Novalis to get the job down. Finanzkapital is Commie bullshit- actually Wikipedia says Gerschenkron might have joined the Austrian Commie party at some point- but, thank's be to God,  a charismatic charlatan he remained.
Nothing wrong with that.  Bruno Betthelheim was a charlatan. But, because Medicine is Scientific and has advanced for that reason, no great harm is currently done by his foolish theory of Autism. Indeed, it was just a restatement of the then popular thesis that 'Momism' was destroying America. If Mummy kisses you- you turn homo. If she doesn't- you go Autistic.
Betthelheim escaped from the Nazis by pretending his PhD in Aesthetics (which he'd only got so as to marry his sweet-heart who found him too ugly and rich to marry without this High Culture Credential) was actually a Medical Degree in Psychoanalysis. He stumbled on 'Autism'- actually he didn't treat any really Autistic kids; he just set up a Concentration Camp for 'difficult' Trustafarians- i.e. Rich people sent their kids to his School as a form of Punishment- and his own Charisma and Capriciousness, at least in some cases, turned out to be a good thing.
Similarly Gerschenkron discovered 'Backwardness' and used it as a means to turn his favourite corn fed Mid Westerners  barbarians into Mitteleuropean, Karl Kraus type, assholes. BUT, HE DIDN'T OPPOSE DROPPING ECON HISTORY AND KNOWLEDGE OF FOREIGN LANGUAGES AS A REQUIREMENT FOR AN ECON PhD from Harvard- i.e. he wasn't genuinely shit. Just lonely.

So Gerschenkron never had anything to do with Economics or 'Development' or whatever.  While he was in Academia, the guys who did have power w.r.t Econ and Development hadn't heard of him, and the same thing was true after he faded into obscurity. He may feature in some worthless Academic 'Availability Cascade'. But he had no influence. Everybody knows this. Yet the author of this piece on Nehru pretends otherwise.
This is what he writes-
' ...the government was to take the lead in industrialisation. This was very much part of the development consensus of those years. The early success of the Soviet experiment had, unfortunately, enchanted many intellectuals. But there was a deeper historical learning (sic) as well. The Russian economic historian Alexander Gerschenkron had argued in his theory of economic backwardness that countries that had not yet industrialised did not have to wait for the right conditions to appear. Gerschenkron had studied the development experience of Europe in great detail. He said that institutional innovation was the way forward for those who were late into the game: Germany had used investment banks to push its initial industrialisation, while Russia had used the state (he was referring to imperial Russia before the communists took over).
The Nehruvian plans had a similar logic of using the state as an entrepreneur as well as providing capital to private industry through special development banks in the absence of deep financial markets. This is the famous quest of controlling the commanding heights of the economy. A more technically correct explanation would be that Nehru wanted the state to dominate the production of capital goods and intermediate goods so that the Indian economy has enough strategic depth to withstand any future attacks on its political autonomy.
Why is this fucked?
1) Gerschenkron's Economic Backwardness shite appeared in 1962. Too late to affect Nehruvian policy.
2) India has had Econ Professors since the 1880s. Ranade, Gokhale and the Servants of India represent one strand of thought, Shyamji Krishna Varma (& Ambedkar) represents another. But the mainstream was solidly Marshallian- well, early Marshallian, when the guy was still reading Lasalle and Marx and tramping around England lecturing to Women and Working Class people and looking into the faces of real poor people seeking to divine the secret causes of poverty.
3) India had a large and growing class of 'technocrats' who were also Socially Aware, Patriotic, Philanthropists- people like Baroness Flather's grand daddy- Sir Ganga Ram. Incidentally, the bad guys in this story aint the Left. My grand daddy (and grand mummy, come to that) was a Leftist Trade Union leader. But, like Anuerin Bevan, back in Blighty, the Indian Left- at that time, not later- knew from what we now call the 'theory of externalities'. Even if they didn't, it is a FACT that ordinary Mill workers were able to see that genuine Technocratic Capitalists were Heroes of the Nation- not evil bastards. Amazingly, this included not striking against WHITE factory owners for no reason. The reason given to my grandfather- this is recorded my grandmother's memoir published in Tamil- was that the elderly Scottish Mill owner had come to India without a penny and worked damned hard. Tamils are Black- they aint stupid. The Mill Owner- maybe because he was some sort of Low Church Scot- had banned drink shops because they are the enemy of the Working Class. Obviously, due to he was a fucking working class WHITE MLECCHA, he had to back down because the High Castes could only tolerate Mill Workers making a decent wage provided they were all forced to drink and then prostitute their own wives so as to pay their bar-tab. My grandfather- who had gone to live in a worker's 'bustee'- despite his education, was able to see sense. He even sacrificed the chance to go to Jail- a la Kejriwal- and worked with the Mill Owner and the Workers- and, later, during the War, even the WHITE Superintendent of Police, to raise up the Mill Workers. They wanted Schools instead of grog shops. Self Respect Weddings. Fuck off with your theories of Backwardness. It is the 'Backward' people of India or Africa or England who want the Rule of Law and the chance to come up through Decency, Abstinence, Education and so on. Whether your name is Aggarwal or Iyer, you are fucking Backward. Doesn't stop you Building the Nation provided you don't go to College or- like my Grandfather- you are too fucking stupid to retain whatever shite you were taught there.
4) Nehruvian plans weren't Nehruvian at all. This is a guy whom the 'Mody-Lees pact' made uncomfortable. True, he couldn't join his fellow Harrovian, Winston Churchill, in denouncing it- but he definitely didn't like it. The truth is, Nehru wasn't very bright but, instead of this being a good thing, it caused him to fuck up because he genuinely didn't know (as Gandhi did) that bright people fuck up big time. The difference between Nehru and Gandhi was that Gandhi genuinely wanted Indians to be weak, poor and utterly shite. Nehru didn't. That's why people loved him. Yes, he was a stupid as shit. That's why Gandhi appointed him his heir. He thought 'this kid is as stupid as shit. In power, he will fail big time- i.e. the country will be reduced to even more shitty conditions than under the Brits. Then, Nehru will come round to my way of thinking and act accordingly'.  Gandhi wasn't entirely wrong.  Rahul's Election pitch to the Indian Public proves that a seed had indeed been sown. But some fucking Shudra of a Ghanchi- called Modi- has upset the applecart for now. Never mind. Have faith in Manu Smriti.  Sooner or later, some Pankaj Mishra type will don a diaper and return home to lead us all back to a Holier than Thou Holocaust.
Returning to the erudite Livemint article under discussion- I may mention that re-reading Bhagwati's 1969 survey article, mentioned by the author, gives us a flavour of the stupidity, ignorance and downright craziness of the  Econ Availability Cascades of the 50's and 60's. The expensive academic training received by young Indian men proved to be the blinkers of stupid Bureaucratic cart-horses. Sen escaped by waxing philosophical. Bhagwati grew a pair after leaving and concentrating on mathematical Trade theory. But what is astonishing is that these bright young guys couldn't see the obvious stupidity of their profession when it most mattered. Everybody else did.
It is completely fucked that India lost its place in the top ten manufacturing nations after Independence just because Growth theory which ignores International Trade is easier to do. It is even more crazy that Indian people- natives, guys who could speak Indian languages- didn't get that 'disguised unemployment' in Agriculture doesn't mean there's workers there who can be costlessly transferred to Industry. People still need to eat and migrants will change their dietary preference to things like rice and wheat rather than the subaltern rustic alternative. Of course, Sen's theory that they will eat five times more than they did before is stupid. Still, the kind of stupid simplyfing assumiptions you make in the class room- and Sen, to his credit, never left the class room- simply oughtn't to be made when you're playing with people's lives.

If there's one lesson from the Nehru-Gandhi years, hopefully now behind us, it is that you must first shoot all the Economists. If you want to fix Agriculture, hire agronomists and Agricultural Scientists- like Borlaug. Shoot Amartya Sen. If you want sound Money- shoot Raghuram Rajan and put in some fat bloke called Jain or Shah who has a lot of diamond rings on his fingers.
Smriti Irani for HRD, however, is fine. Nejma Heptullah has a PhD from America so keep her in Minorities even though she is now threatening to make the Parsi community embrace their bahu, Smriti, so as to boost their numbers. Don't forget, Indira was also a Parsi bahu. Give Rahul minority status. He is an educational institution in himself showing the stupidity of studying Development Economics at Cambridge.


  1. Utter rubbish. It is you who are completely stupid and ignorant. I've glanced at some of your other 'India development' posts. You should be ashamed to claim some great learning in this field. You are typical N.R.I. You shout loudly but don't know anything. You believe all Indians are just stupid like yourself.
    Please read Dietmar Rothermund's Economic History of India. Then you will appreciate what is Scholarship. You think Narendra Modi's victory shows that Indian intellectual class is out of the picture. This is just your own dream. You are a mad fellow. Please get Medical help.

  2. The author of the piece is an Indian journalist- Niranjan Rahadhakshya- probably in this Thirties or early Forties judging by his photo. He isn't 'erudite' at all. Yet you make him a 'straw-man' supposedly representing Cantabarian scholars, and then proceed to treat his illiterate verbiage as the proverbial Aunt Sally.

    You are not a particularly stupid or ignorant man. We expect more of you. Why is 'Growth and Capital theory' silly ?
    Inquiring minds want to know.

  3. Prof Deepak Lal has been the lonely voice of sanity on this topic for thirty years.