The underside of growth

Print edition : May 29, 2015

THE question whether economic globalisation and liberalisation are good for Third World countries is still a hotly debated one. The defenders of globalisation, including successive governments in New Delhi since the early 1990s, would say market-driven policies have modernised economies, rejuvenated growth and lifted millions out of poverty. But actual data would contest these claims. India is a case in point. The country attained faster economic growth after it started implementing market reforms. For example, gross domestic product (GDP) expansion averaged 7.7 per cent in the 10 years starting 2004-05, the highest growth seen in any decade, considerably higher than the previous 10 years’ average growth of 6.2 per cent. But did this high GDP growth translate into employment generation and poverty reduction? The government would say yes. Planning Commission data suggest India’s poverty declined to a record 22 per cent in 2011-12 from 37.2 per cent in 2004-05. But this claim is widely disputed.

For example, a study by the economist Utsa Patnaik, based on data released by the National Sample Survey Office (NSSO), argues that the claims of poverty reduction in India are a result of a mistaken method. “By 2009-10, after meeting all essential non-food expenses (manufactured necessities, utilities, rent, transport, health, education), 75.5 per cent of rural persons could not consume enough food to give 2,200 calories per day, while 73 per cent of all urban persons could not access 2,100 calories per day. The comparable percentages for 2004-05 were 69.5 rural and 64.5 urban, so there has been a substantial poverty rise,” she wrote in an essay in The Hindu on July 30, 2013.

Utsa Patnaik’s findings are underscored by the employment generation numbers for the period released by the NSSO. According to a study by the Institute of Applied Manpower Research in New Delhi based on the NSSO data, employment in the five-year period ending 2009-10 grew by 2.7 million while average economic growth over the same period was 8.7 per cent. This means that the average number of jobs created annually during this period was 540,000, compared with an estimated 12 million people who joined the workforce every year. In other words, high economic growth does not necessarily create employment opportunities and reduce poverty. Rather, “this growth has been accompanied by increasing inter-personal and inter-regional income disparities, with poverty levels being considerably higher than what was suggested by earlier estimates,” write Akmal Hussain and Muchkund Dubey in the introduction of Democracy, Sustainable Development, and Peace: New Perspectives on South Asia, edited by them.

In a chapter, Dubey and Biswajit Dhar argue that the market-driven economic model has been a double whammy for India. While social exclusion has long been practised in India on the basis of religion, caste, ethnicity and gender, the adoption of liberalisation policies has led to a new form of exclusion, “market exclusion”. “The degree of access to the market is determined by the initial distribution of productive resources and income. Consequently, the market excludes a large proportion of the deprived population across caste, religion, class and gender.”

India’s story is not an isolated one. Rather, it represents a trend visible across the Third World, especially in South Asia, where almost all nations follow the market-driven economic model and are obsessed with high economic growth numbers. While most of them do attract huge private investment and achieve high economic growth, those numbers do little to address the central problems of their political structures. Hussain and Dubey’s book offers deep insights into these problems and the South Asian region at large.

Comprising essays by reputed academics such as Imtiaz Ahmed, Ela Bhatt, Ajay Chhibber, Binayak Sen and Kapila Vatsyayan, the book examines four inter-related dimensions that constitute the central policy challenges of contemporary South Asia— strengthening democracy through greater social inclusion in the process of democratic governance; confronting violent extremism; overcoming mass poverty through inclusive growth; and addressing the crisis of the environment.

Social and economic inclusion is an imperative for the development of democracy, but free-market economic policies actually hamper the progress of such inclusion. The governments in the region all claim to be committed to “inclusive growth”, but the reality is far from such claims. “Inclusive growth will involve broad-basing the growth process by giving the middle class and the poor access to productive assets, high quality skills and equitable access over the markets for capital, high wage employment and markets for goods and services,” write Hussain and Dubey. If one goes by this definition, it is not difficult to see that inclusive growth is completely absent in the region. This is one of the dichotomies of free-market economics. Because, the market includes buyers with purchasing power and sellers who have productive assets, including saleable skills, argues Deepak Nayyar in his chapter. “Those who are at a disadvantage in terms of purchasing power and productive assets have unequal market access or may even be systematically excluded from livelihoods within the market mechanism.”

challenge of exclusion

So, the question is how to tackle this challenge of exclusion of the vulnerable sections of society from the politico-economic mainstream. Thangavel and Fatma Gul Unal argue that it is not possible as long as governments remain blindly focussed on the single-point agenda of economic growth. Rather, South Asian nations need to shift their policy framework from an “exclusive focus on growth” to changing their structures to increase the capacity of growth for poverty reduction. Unless this focus shifts, governments’ claims about poverty reduction would at best remain rhetoric.

And this socio-economic inequality comes with a heavy price. On the one hand, the “marketisation” of state policy weakens the government’s capability to provide social security to its people, which, in turn, gradually erodes its legitimacy. On the other, a society with high levels of inequality and poverty is vulnerable to the emergence of violent non-state actors. “The violence that threatens democracy as much as state structures in South Asia in many cases originates in a sense of exclusion from the political and economic growth process,” write Hussain and Dubey in the introduction.

One can find examples of this in both India and Pakistan, the two major South Asian nations. Both follow free-market economic policies and are witness to high economic growth, but both have serious internal security challenges to cope with.

While India has the Maoist problem, which emanates largely from the social, political and economic exclusion of a large number of people, Pakistan is struggling to deal with challenges ranging from separatism to religious extremism. It is to be noted that in the years of liberalisation, the internal challenges of these nations have been steadily on the rise. In his essay on Pakistan, Hussain proposes a “sustained economic growth” model that would help the country tackle its long-term problems. “Pakistan requires a change in the institutional structure whereby the middle class and the poor can participate as subjects in the growth process rather than being merely the recipients of an uncertain trickle-down effect.”

Another obvious problem caused by this relentless pace of growth is the damage to the environment. The best example in contemporary history is China, where unprecedented economic growth and a fast-paced industrial revolution have done irreparable damage to the environment. South Asia is not far behind. India is already facing severe ecological challenges. Leena Srivastava, in her essay, identifies three key environmental challenges in South Asia—land degradation, water stress, and the impact of climate change. Of this, water stress is particularly important as it directly and immediately affects millions of lives. She says the gross per capita water availability is expected to decline, and apart from Pakistan, India is also expected to reach a water stress situation before 2025.

So the obvious question is how the region, which is at “a conjectural moment in its history”, will address these challenges. A great positive about South Asia is that it is more or less ruled through participatory democracy. But persistent mass poverty and economic disparities remain constraints to fulfilling such a vision of democracy in the region, while unchecked, rapid industrialisation threatens the environment.

Some chapters in the book seem to suggest that better regulation of the market and proper institutional mechanisms would help South Asia tackle these challenges. Such arguments overlook the fact that the real problem is systemic. Structural inequality, environmental degradation and violence are part and parcel of the capitalist order. That message is missing in this tome.

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