| World beneath his feet
The Fifties and early Sixties in New Delhi, with five-year plans holding the centrestage. The planning commission was taken seriously by about everybody; P.C. Mahalanobis straddled across it like a colossus. Largely at his prodding, an impressive number of eminent economists and planners, most of them from Europe and the United States of America, were invited to visit India and take a look at the nation’s ongoing planning exercises. Perhaps what was sought was not advice as such, but assurance that the commission was proceeding in the right direction.
These visiting economists — Gunnar Myrdal, Ragnar Frisch, Jan Tinbergen, Joan Robinson, Michal Kalecki, Oskar Lange, Charles Bettelheim, Nicholas Kaldor, Richard Goodwin, John Kenneth Galbraith, Paul Baran, Shigeto Tsuru, Abba Lerner and others — were either socialists by conviction or left Keynesians. Two parallel rationales were implicitly at work in shaping the ambience of the time. First, the prestige the Soviet Union enjoyed in the aftermath of the victory over Nazi Germany. The fortitude displayed by the Soviet people and their leaders during the war against the Axis powers was linked in public imagination to the positive achievements of Soviet five-year plans; what had served the Soviet Union so well should, it was argued, serve equally effectively an emerging nation like India. The other reason proferred for experimenting with an economic plan in which the public sector was projected to occupy a large space was the American success in overcoming the depression of the Thirties through a vast programme of public works. This was in conformity with what was advocated by John Maynard Keynes. With large-scale public expenditure financed by deficit financing, capitalism could, he had argued, overcome the crisis of mass unemployment and under-consumption. President Roosevelt’s pragmatism proved Keynes to be right. Generous accommodation accorded to the public sector was therefore not still alien to official American policy. It could play a key role, it was hinted, in the development process of a newly-independent country, meaning India, as well.
In the circumstances, the economists who arrived to counsel the Indian authorities were explicitly in favour of a policy framework in which the commanding heights of the economy would be taken over by the government. In this community of like-minded wise men and women, there was however one incongruous presence. The odd man out was Milton Friedman. It is a mystery how it happened. The invitation to come and advise the Indian planning commission had gone out even to Friedman at the University of Chicago. Friedman, a monetarist par excellence, was an instinctive blower of the free enterprise trumpet. The public sector he considered to be an enemy of human welfare. A firm disbeliever of the doctrine that state intervention, such as via deficit financing, could solve any of the fundamental problems of an economy; planning of the kind advocated for India by socialists and left Keynesians, he did not have the least doubt, would stifle private incentive and ruin the country. Only a sound monetary policy, with emphasis on strict regulation of money supply so as to avoid inflation, in his view, could underwrite satisfactory economic growth.
Naturally, Friedman was a misfit in the climate then prevailing in New Delhi. He gave a few lectures to disinterested groups in the planning commission and the Delhi School of Economics, answered a few cynical, desultory questions, visited Agra, Fatehpur Sikri and Jaipur, and quietly went home.
But every dog has his day; monetary economists too have theirs. As the post-World War II decades progressed alongside the fading euphoria over socialism, the capitalist crisis too blew over in the Western countries, thanks to adherence to Keynesian prescriptions. Economic reconstruction in war-ravaged western Europe was made possible by huge government-to-government transfers under the Marshall aid. Capitalists gained back their confidence — and their greed for profit-taking. The wolf in sheep’s clothing could now revert to its true identity. Friedman’s assertion that excessive public spending crowds out private initiative and discourages private investment was music to capitalist ears. In country after country, those responsible for setting official policy sat up and listened. Both France and Italy had meanwhile been saved from the fate of falling into the clutches of the communist party; the hitherto nervous-minded social conservatives could now breathe easy. Amongst so-called social democrats too, the Cold War psychology was strongly at work; distrust of the Soviet Union and the policies pursued there began to come under an increasingly critical look.
Such are the ironies of history. Franklin Delano Roosevelt followed the medicine offered by the British plutocrat, Keynes, vastly enlarged the scale of public sector activities, and licked the problem of capitalist crisis in the US. The wheel turned full circle by the Seventies. Margaret Thatcher, the Conservative Party prime minister of Britain, pursued to the hilt policies recommended by Milton Friedman and won back the country from Labour. She went all the way with Friedman, adopted a comprehensive programme of denationalization and cut back, mercilessly, public spending. There were over two-and-a-half million unemployed in the United Kingdom, but, no worry, precisely because so many were unemployed, the trade union movement had lost its teeth, it was in no position to mobilize the working class for a counter-attack. The discontent resulting from severely reduced public expenditure and the closure of public enterprises was contained without too much strain. The number of unemployed in both France and Germany was as high as four million. Again, for the same reason — the inability of the trade unions to activate their ranks — the contagion of lowered public spending spread in more and more countries.
Capitalism was in need of a theoretical underpinning for its new mood of aggression. Milton Friedman, with his pronouncements such as that higher incomes are honest compensation for taking higher risks and that Keynesian public finance policy is at best irrelevant and at worst socially harmful, provided just that. He became the messiah of the new age. Once the Soviet Union collapsed, socialists everywhere further withdrew in their shell. And, along with the socialists, the left Keynesians too lost their profession. The US is the major stock-holder of both the World Bank and the International Monetary Fund. Both institutions were duly captured by Milton-fan monetarists, who were, therefore, in a position to influence official economic policy in the poorer countries: unless their words were heeded to, short- as well as long-term capital would be denied to the countries.
What was inevitable, the ambience being so propitious, international finance capital has been on the rampage over the past two decades. The bugbear of socialism is safely dead. The Keynesians are confined within the narrow corridors of Cambridge, England; they are reportedly losing ground even there, Russia and the rest of eastern Europe are taking giant strides towards capitalism. The Middle Kingdom is practising an economic doctrine, which is being interpreted as socialism with Chinese characters, but, many suspect, it is in effect capitalism with Chinese characters. India has enforced a Fiscal Policy and Budget Management Act, which is quintessentially Friedmanesque. As far as external accounts are concerned, it is rapidly moving in the direction of full capital convertibility. Only Latin America is somewhat wobbly. Otherwise, everything is fine and excellent all around. It is no wonder that the world’s bourses are reaching dizzy heights.
Milton Friedman died peacefully last month in Chicago at the ripe old age of ninety-four. He must have died a very contended person. History, his acolytes would say, has done justice to him; the rough treatment he received in the early phase of his career, exemplified by what he suffered in the hands of the socialist pretenders in India in the late Fifties, has been atoned for. But there are others who would claim that the sum-total of this man’s contributions is to stamp economics with the stigma of an evil and heartless discourse.