The case for freedom

Issue 24 - Mar 2009

Ravikiran Rao

A VISITOR from the 17th century on a trip to the year 2009 would be rather surprised to learn that the United States of America is in distress. He would, of course, be no stranger to troubled times; but in his time, troubles came in the form of famines, diseases, strife and taxes. This blight called “recession” that has struck the United States would seem strange to him. Factories that were at full steam two years ago are now idle, though their productive capacity is undiminished. Healthy men and women who were working in those factories now sit at home. Goods lie in warehouses even while vehicles to transport them in and roads to carry them on remain intact. Further inquiry would reveal that the cause of the United States’ trouble is a breakdown in the system by which it co-ordinates demand and supply, present and future consumption, and risk and reward. Though the visitor would not be prepared for the scale and sophistication of the system that has now suffered a setback, he would be no stranger to the idea of markets. Markets and traders have existed for as long as humankind has, and so have attacks against them.
Defending free trade and free markets has never been an easy task at the best of times. Defending financial markets is an even tougher proposition. If our visitor is from Europe, he would know of pogroms against Jewish moneylenders, conducted by princes unable to repay the money they recklessly borrowed. Trading and money-lending have always been little-understood professions; the role they play in society has always been questioned.  At Pragati, our stated mission is to further the Indian national interest, which, we continue to believe, is served best through economic freedom. It is natural that at times like these, when “greed” and “unregulated markets” roll off the tongues of detractors like a well-practised refrain, our continued belief requires some explanation.
An important part of the explanation is to reflect on the fact that if our 17th century visitor is offered a choice between suffering the disasters he has experienced and the one that he is witnessing, he will unhesitatingly choose the latter. India, along with all of humanity, faces a similar choice. Its former finance minister, P Chidambaram, has boasted that India has escaped the malaise that has struck the world because it has “regulated” its markets better. He has neglected to mention that this narrow escape has come at a cost. The cost is that India suffers the continuing disasters of poverty, malnutrition and backwardness. Percy Mistry, noted proponent of open financial markets, has asked why India is willing to forgo 30 percent of GDP growth in order to stave off a financial shock once in a decade that will cost it 3 percent. This is a valid question that must be asked more often, and the 30 percent of GDP that India loses should be quantified in terms of human costs.
The cost is paid by the farmer who is forced by law to sell his produce to the Agricultural Produce Marketing Commission, controlled by thuggish local politicians. It is extracted by government officials who stalk the borders of every city and every state, holding up trucks carrying the farmer’s produce for hours and days. The cost that they extract, in bribes, time and waste, is paid by the farmer who could have got more and by the consumer who could have paid less. The inability to conduct trade and transport over long distances within India means that industries are concentrated in a few small cities, which in turn means that the farmer, if he does decide to migrate, has to travel far more than he should have to.
The government expropriates Indian citizens’ savings and “invests” them in wasteful schemes. And to ensure that this continues, it prevents a decent bond market from developing. This hamstrings the economy and prevents companies from making investments. Government-owned banks make politically-directed loans, which cuts off credit for productive small businesses. The government mandates that certain products can only be produced by “small-scale” industries, and this provides an incentive to those industries to stay small artificially. They hold back from making investments that will give them advantage of scale, and keep workers off the rolls to avoid hitting the upper limit. The cost paid by the factory worker who works in the unorganised sector must surely count in the 30 percent of the GDP that India loses every decade.

4 Replies to “The case for freedom”

  1. jayramasamy123

    We need to educate the common folks who keep on electing these politicians who don’t care about them or don’t know anything about supply and demand.Free market and open trade helps the poor most. But due to communist propaganda for years there is a impression that the free markets only help rich businessmen.This villification of business people and market in general should be countered with effective arguments.We should be able to articulate the virtues of the free market and convince the common folks that it is the only way to prosperity.

  2. Janus

    A visitor from the 17th century would have no idea what America is, since depending on when in the 17th century he was from (1600-1699) he would be between 77 and 177 years before the US was founded! 🙂

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