This is the first part of a two part series on value systems and public policies.
Donald Trump’s election as president of the USA by a majority of US citizens is an occasion to reflect about where the world is heading, and for introspection on what impacts Indian policies.
Trump has laid down his agenda for tearing up institutions. The strangulation of the UN will continue. The US, with only 4% of the global population, and 15.5% of global GDP in PPP terms, will continue to veto the implementation of UN general assembly resolutions.
Trump says he will unilaterally impose high tariffs on imports from Canada, Mexico, and China on day one. The World Trade Organisation (WTO) can now be buried. His domestic agenda is equally bold. He has appointed Elon Musk, one of the richest man in the world, to lead a new Department of Government Efficiency (DOGE), whose mission is to dismantle the US government.
The charade of the Washington ‘consensus’ has ended with Trump’s election. The consensus had two sides. One was acquiescence by all, with the collapse of the Soviet Union in 1991, to US global hegemony. The other was the supposed end of ideological conflicts – the ‘end of history’, as Francis Fukuyama described it. One was the presumption that, hereafter, democratic governments formed through elections and competing political parties would be considered the best way to form a government. The other was that free-market capitalism had defeated socialism as the best way to govern economies.
However, the citizens of electoral democracies are fed up with the charade of self-serving politicians competing for power in their countries in the name of democracy. Authoritarian governments are being elected on all the continents. Even in the US, citizens are frustrated with their American system of democracy.
A New York Times/Sienna College poll in October 2024, reveals that 45% of Americans believe that American democracy does not do a good job of representing the people, and as many as 76% believe American democracy is under threat from its own inadequacy and corruption (not Russian and Chinese interference). It is ironic that, at the same time, the US is using its formidable military power, and its hegemonic control of the global financial system, to undemocratically force citizens of Russia, China, Iran, and Venezuela (which it claims are not democratic countries) to change their governments.
The business of government is business
An ideology of the Washington consensus was its disdain for government and insistence that private business is the best way to run an economy. Ronald Reagan in the US and Margaret Thatcher in the UK were influenced by the same school of economics which said that the business of business must be only business and the business of government must be to promote business. “Government is not the solution: it is the problem,” Reagan had declared. Trump has charged Musk to complete the job of dismantling the federal government.
The dismantling of business regulations makes it easier for businesses to do their business of making profits for investors. In all the countries swayed by the ideology of liberated economies, the growth of dignified employment with adequate incomes is not keeping up with the increasing wealth of those who make money from investing money.
Inequality between the top 1% and the rest has been increasing everywhere in the last three decades. The gap is increasing fastest in India with the top 1% owning over 40% of the country’s wealth. Inequality in India today is worse than during the British Raj, as per a study published in September 2024 by the World Inequality Lab, which described India’s inequality as ‘the Billionaire Raj’. The study points out that between 1930s and 1947, during the British Raj, the top 1% of Indians held a smaller 21% of the country’s national income.
The building and running of public infrastructure – banking, transport, communications, etc. and the privatisation of public services – health, and education, provides more opportunities for businesses to make profits. While the private sector expands, the ease of living of citizens, especially the poor who cannot afford to pay for essential services, does not always improve.
The benefits of booming stock markets, which continued to rise through the pandemic when billions suffered, have not trickled down yet. Human development indicators appear to be declining even in rich countries according to some recent surveys. India continues to lag many poorer countries despite its economy growing faster. As per UNDP’s latest human development index, India ranks at 134th position out of 194 countries, behind China, Sri Lanka, Bangladesh and Bhutan.
The ‘hybrid’ Indian state
The increasing ‘privatisation’ of the Indian state is a controversial issue. Privatisation of the state takes many forms. One is crony capitalism, which has again become a hot political issue in the country, with the shoe on the other foot this time. The Congress-led United Progressive Alliance (UPA) had been brought down in 2014 by public anger against the high-level corruption in the 2G spectrum auctions and building of the Asian games infrastructure in Delhi. It was replaced by the Bharatiya Janata Party-led (BJP-led) National Democratic Alliance (NDA) in 2014. The Congress is hitting out at the BJP for favouring a particular industrialist, who has become India’s (and for a while Asia’s) richest man in a single generation, and who is accused by US regulators of corrupt practices in India.
While we may be coy in India about acknowledging that a rich industrialist is close to the head of our government, the incoming president of the US has openly announced that he is handing over the mission of ‘improving’ the government to one of the richest businessman in the US.
The private sector has legitimately crept in at many levels into the governance of the Indian state. Private consultants have been engaged in increasing numbers by the central and state governments to improve the efficiency of government ministries, design government programmes, and develop policies. The handing over of education and healthcare institutions to the private sector, through the PPP (government-private sector partnership) mode, and even full privatisation of public services such as savings’ banks and public utilities, has been accepted as the only way these public services can be provided efficiently.
Also read: Trump Warns 100% Tariffs on BRICS Countries if They Try to Bring Dollar Rival
Inequities increase with private provisioning of public services. Private sector managers and consultants to governments apply a management theory they have learned in business schools, that the measure of any enterprise’s performance is the economic surpluses it produces. “You get what you pay for” is the business principle by which the private sector must run or become bankrupt. This system cannot provide for the needs of citizens who cannot earn enough to pay for the services. The poor are shut out twice. First by the government withdrawing from its responsibility for providing essential services to all citizens. And then by their inability to pay for the privately provided services.
India is at cross-roads again
The Indian economy is at a turning point. In 1991, it had taken the road towards ‘liberalisation’ of the economy, releasing it from the shackles of ‘socialism’, following the Washington (and International Monetary Fund or IMF) paradigm of economic reforms. Open international trade, abandonment of industrial policies to build domestic capabilities, minimisation of government’s role in welfare. These policies were expected to improve the well-being of citizens better than ‘socialism’ could. It has not turned out that way. The benefits of GDP growth seem to be trickling up, not down. Returns to financial investors are increasing – stock markets have been thriving. ‘Income poor’ and ‘jobless’ growth, and minimum public provision of social security, is the outcome of the growth of a liberalised and privatised economy. The GDP has grown no doubt, but incomes of farmers and wages of workers are not keeping pace.
Elections can never reveal what all citizens want: it is a mathematical impossibility. Kenneth Arrow proved it with his ‘Impossibility Theorem’ (Arrow won the Nobel Prize in economics in 1972 for his contributions to welfare theory). However, trends across multiple elections can reveal broad patterns. Recent national and state elections in India have revealed that a concern of all citizens in the lower half of the pyramid, across religions, castes, and regions, is the failure of India’s economic growth to provide them with opportunities to earn enough in jobs and in their small enterprises. Exhortations to them to be “job creators, not job seekers” and to “stand up and start up”, were a clever transfer of the state’s responsibility onto them for what the state was failing to provide for them.
You can fool some of the people all the time, but you cannot fool all the people all the time, Abraham Lincoln had warned political leaders. All political parties, and all state governments in India, whatever their political affiliations, have realised that India’s GDP growth has not translated into adequate incomes for the masses. All are now providing more money directly to citizens to win their votes, through direct cash transfers for a variety of schemes, to compensate them for the failures of the pattern of India’s economic growth to take care of all citizens.
The Indian economy needs fundamental reforms to improve the well-being of its citizens. The country’s ‘demographic dividend’ seems to be slipping away. Young people, who are abundant in India, need opportunities to earn enough and with dignity. Gig work and casual employment may add to official numbers of ‘employment’. But people so employed do not have adequate incomes and have no social security. Tragically, the more formal education youth get, the less likely they are to find opportunities to earn. Even graduates are scrambling for jobs as peons and delivery boys. Social unrest is increasing.
The response of ideological champions of the liberal market reforms of 1991, to a looming social and economic crisis, is to exhort India’s policymakers to press even harder on the private markets’ accelerator to reform farm, labour, and land markets.
Economic science is in a rut. For supporters of free markets, trouble in an economy is a sign it has not ‘reformed’ enough. It was too socialist. Its government did not get out of the way of the private sector sufficiently; its government continued to nurture domestic industries and employment; it continued to deliver services to needy citizens rather than handing them over to the private sector. The harm IMF’s structural reforms have caused are visible in many countries. Very few governments have openly resisted. A socialist government elected in Greece after the 2008 financial crisis which did, was beaten into submission by the IMF and European Central Bank and it fell.
The IMF has examined why many governments have been forced to dilute IMF-backed structural reforms and even backtrack. The IMF World Economic Outlook Report (October 2024) concludes that stakeholders are not consulted sufficiently before policies are designed because experts think that common people do not understand their own problems as well as experts do. Consultations if any are pro forma and insincere. Unsurprisingly, the reforms are resisted when they are imposed on the people. The report recommends that shortcomings of reforms can be avoided if policymakers are willing to listen to the perspectives of all stakeholders, especially those most affected.
Arun Maira is a former member of the Planning Commission and former chairman of BCG India. Sarthak Shukla is a doctoral student at the Department of Urban and Rural Development at the Swedish University of Agricultural Sciences, Uppsala.
