Years ago, when I was in Scandinavia, I was struck by the nature of Scandinavia’s political economy, the social peace that obtained there and the attendant fantastic living standards that people enjoyed. Being an amateur economist, curious and wondering if the Scandinavian model could be replicated in non- western societies, I delved into the nature of Scandinavia’s political economy. The reasons for Scandinavian success disappointed me: their model was premised on social democracy wherein the state, among other things, deemed itself responsible for the comprehensive welfare of its citizens. The state essentially took care of its citizens from the cradle to the grave. It nannied its people and was paternalistic in nature.
My disappointment may sound counterintuitive and bizarre given that it would seem outlandish to argue against state benevolence and generosity. However, there was (and is) a dark side to Scandinavian social democracy: its paternalism, for one, denies people the freedoms that people in liberal democracies take for granted. The state was coercive and the social contract that bound the state with society was oppressive in many senses. The other dark and glaring feature of this was that Scandinavia was homogenous , frowned upon and excluded the outsider or the foreigner. The bounty of the place was only to be for Scandinavians. It could be shared only under exceptional circumstances-say, for instance, refugees fleeing to Scandinavia could be given some succour and relief. Barring this, Scandinavia was a closed system and fortress like.
Anyhow, this is not the core contention of the piece. I was and continue to be concerned with the welfare gains and economic and political freedoms for/of the peoples of the subcontinent. I realized that Scandinavia could afford to be generous and benevolent because of a high rate of taxation. (The high price of even cappuccino’s and lattes and my favourite fruit, bananas, and my indulgence, cigarettes , fell into perspective). The base of taxation was wide and deep and a middle class sizable enough to generate taxes that the state could then redistribute through transfers.( The other flip side of this was that this discouraged entrepreneurship and wealth creation). This was well nigh impossible in poor, non- western countries like India where the size, poverty and structure of the country militated against this.
Aghast, I probed into the nature and premises of the political economy of India. It was then that I discovered that India too was a welfare state of sorts. The welfare function was provided by the state into the form of the massive and huge public sector. Non- farm labour was absorbed by the public sector and this provided a safety net for millions across the country. This could be attributed to Nehru and the mood of the times in decolonized countries: socialism.
While this is all well and good, over time, however, the public sector has become bloated and I daresay inefficient. This has affected the quality of governance. Both the demand and supply side of governance have been affected. This is coupled by the intense pressure on the public sector where most people in India clamour for the security of a government job. The sector can absorb only so much of the labour force and this then leaves many high and dry.
The question is how can the public sector be made more efficient, the quality of governance improved and at the same time sating the welfare needs of the people? This is a bit of a poser. All three are related. Before hazarding an answer, it bears mention here that India or for that matter no non-western country should go whole hog with free market capitalism or market fundamentalism. It is social Darwinist and ruthless. The appropriate solution is a balance between the markets and the state and a mixed economy. At the same time, socialist shibboleths and autarky are non-starters in today’s world.
Having established the philosophical context, I now turn to attempt to answer the question I posed. It would appear that the prudent approach to be adopted by the state would be to streamline the public sector and make it more efficient and hence more productive. This would entail job losses but this should be taken up by the private sector and market forces. For this to happen, the state has to enter the picture again. The state should and must vigorously and seriously made education as a priority in its list of functions.
It must ensure that education is provided to all so that equality of opportunity is accorded to all and sundry. This would not only mean an enlightened and empowered citizenry but also a skilled citizenry ready and equipped with the skills that the markets need and want. The logic of choice and freedom would ensue and people with increased and improved capabilities can embark on ventures and careers that correspond to their potential and talent. It would relieve pressure on the public sector and the private sector would be only too happy to take on board educated, skilled people.
It is perhaps only this-the development of human capital- that can speak to the conditions that obtain in the 21stcentury. Socialism was a passing fad and given structural limitations India cannot be a social democracy.( Social Democracy’s future in Europe-its birthplace- is a moot point). The state has to ensure that there is a balance between the state and markets and position itself in a way that it becomes a facilitator and enabler. It cannot and should not nanny; nor should it abdicate its responsibilities and functions. It is with this in mind that non - western states should craft and design policies. We live in a different world and this world demands a review of old shibboleths and hallowed policies. Continuing on the same old path would be a disaster: we’d be left as road kill. So let’s dust our clothes and face this brave new world with vigour
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