The-Role-Of-Ideological-Change-In-Indias-Economic-Liberalization.Pdf
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The Journal of Socio-Economics 44 (2013) 103–111 Contents lists available at SciVerse ScienceDirect The Journal of Socio-Economics j ournal homepage: www.elsevier.com/locate/soceco The role of ideological change in India’s economic liberalization ∗ Nimish Adhia Manhattanville College, Purchase, NY 10577, USA a r t i c l e i n f o a b s t r a c t Article history: The paper describes the role of ideological change in India’s economic liberalization and provides evidence Received 14 September 2011 for it. Since the 1980s the most prevalent ideology has changed from condemning commerce and profit as Received in revised form 4 February 2013 anti-social, to tolerating—even applauding—commercial success. The paper reports on a content analysis Accepted 9 February 2013 of the most popular Hindi film each year since 1955, and finds that characters of rich merchants have changed from being portrayed as villains to being portrayed as heroes. JEL classification: © 2013 Elsevier Inc. All rights reserved. N45 O24 O53 Keywords: Economic policy Ideology Liberalization Culture India 1. A serious omission The omission of ideological change in academic literature on the topic is surprising given that some of the most renowned The economists and several other social scientists who have economists have emphasized the fundamental role that ‘ideas’ written about the causes India’s economic liberalization have play in human behavior and institutional change. Adam Smith, focused exclusively on explanations based on wealth maximiza- J.S. Mill, John Maynard Keynes, Albert Hirschman, Herbert Simon, tion. The role of IMF, class interests, political incentives, and the F.A. Hayek, Douglass North, Deirdre McCloskey, Amartya Sen have end of cold war in the liberalization that saw a dramatic reduc- talked about ideas as being at least as important as incentives in 3 tion in tariffs, taxes and the ‘License Raj’ have been thoroughly shaping the economic outcomes of societies. So by complement- 1 analyzed. What has been ignored has been the big ideological ing the existing interests-based scholarly accounts with an account change, a culture-wide favorable turn in the ethical evaluation of of ideological change, the paper fills out the gaps in the explanation businessmen and commerce that took place in the decade leading of an episode of major policy change. up to the reforms. According to the socio-economic perspective, people’s choices arise from the confluence of self interest and other 2. IMF’s clout is weak 2 considerations—the so called “proposition of multiple causation.” The purpose here is to argue that the explanations of India’s lib- Since the liberalization episode began during a balance of pay- eralization based on wealth maximization are incomplete without ments crisis when the government had approached the IMF for taking into account the ideological change. Using the character por- a loan, several economists credit the reforms to the conditions trayals in popular Hindi films this paper provides evidence that the 4 imposed by the IMF. If it was indeed the case, then it would quite ideology prior to the 1980s that condemned the pursuit of private remarkable, because empirical studies have found that, in general, gain as anti-social was supplanted by an individualist ideology in compliance with IMF conditionality is rather low, rarely exceed- the 1980s that was more conducive to liberal policies. 5 ing 40% of the episodes studied. In India the reforms continued even after the crisis passed, and are ongoing. Something more than ∗ 3 Corresponding author. See Smith (1750), Keynes (1936), Hirschman (1986), Simon (1997), North and E-mail address: [email protected] Denzau (1994), and McCloskey (2010). 1 4 For example, see Bardhan (1998), Jenkins (1999), and Lal (1999). For example Sachs et al. (1999). 2 5 Stern, “The Socio-Economic Perspective and Its Institutional Prospects,” 1993. Dehler, 2008. “IMF Conditionality: Theory and Evidence.” 1053-5357/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.socec.2013.02.015 104 N. Adhia / The Journal of Socio-Economics 44 (2013) 103–111 outside pressure seems to have been at play. Hayek has noted “if the opportunities and easing of government regulations in the urban 11 politician or statesman has no choice but to adopt a certain course sector.” As he tells it, group material interests were the driving of action (or if his action is regarded as inevitable by the historian), force of India’s economic policies. this is because his or other people’s opinion, not objective facts, In similar vein, Rob Jenkins, a political scientist at the University 6 allow him no alternative.” The ‘opinion’ that conditioned India’s of London, says that “the great majority of India’s elites, includ- response to the 1991 crisis is therefore crucial. ing the Prime-Minister who initiated reform, were not ‘converted’ to the neoliberal faith. Indeed, they were not even committed politically to liberalization until they perceived the possibilities of 2.1. Disappointing growth is not sufficient to spur change responding to illicit incentives.” He points to the many opportu- nities opened up “to profiteer personally or to build networks of Others write that the Indian government pursued reforms out patronage by steering benefits to political supporters.” “The basic of disappointment with past economic performance. Writes T.N. point,” he says, “is well worth contemplating: that state elites enter Srinivasan, “there was no significant political support for reforms into the adjustment [liberalization] process believing that they can until 1991, when a serious macroeconomic and balance of payment 7 steer it toward its own ends. This perhaps explains why they decide crisis forced a rethinking of the development strategy.” Similarly, 12 to adjust at all.” Cassen and Joshi of Oxford University note, “By the beginning of But in absence of empirical evidence, such explanations of 1980s it began to be recognized that the system of controls, with the policymaking exclusively in terms of economic interests are prob- heavy dependence on public sector and a highly protected inward- lematic. The political scientist Jalal Alamgir argues that social oriented type of industrialization, could not deliver growth in an 8 groups in India are based on complex considerations that those increasingly competitive world environment.” of material interests alone. Therefore it is difficult for an observer But in general, policymakers do not regularly change their to “translate in straightforward way a group’s imputed material minds in face of lackluster economic growth, as economic pol- 13 position into consistent policy preference.” icy is invested with political, social and ethical significance. The What is missing from the materialist explanations of policy economist Brunner has noted that “economic policy does not occur making is the commitment to certain normative beliefs, which fre- in a socio-political vacuum. It forms an essential component of 9 quently propels policy. Sen warns that “just as it is necessary to an ongoing fundamental conflict about the future social order.” avoid the high-minded sentimentalism of assuming that all human It is not surprising because bad economic outcomes rarely lend beings (and public servants in particular) try constantly to promote themselves to unambiguous explanations and policy prescriptions. some selfless ‘social good,’ it is also important to escape what may A re-orientation toward liberal policies, as happened in India, is be called the ‘low minded sentimentalism’ of assuming that every- therefore needs an additional explanation, such as a change in the 14 one is constantly motivated by personal self-interest.” He points prevalent ideology. out that people often act out of a commitment to certain princi- Even if Indian policymakers had come around to a growth- ples, and such actions cannot be adequately captured within the centered view, it is not necessary that their preferences would have framework of rational self-interest. translated into policy changes. In a democracy after all, policymak- ers must defer to the wishes of voters, powerful political supporters, 3. Does ideology matter, in theory? and organized interests that may not be aligned with policies that promote aggregate growth. The focus on interests to the exclusion of ideology is very common, particularly in economics. As Gary Becker puts it: “The 2.2. Special interests did not uniquely determine policies economic approach to political behavior assumes that actual polit- ical choices are determined by the efforts and groups to further Some scholars posit the liberalization as an outcome of struggle 15 their own interests.” Because an attempt to expand the definition among class or special interests. For example, the economist Pranab of “interest” to include several considerations renders it tauto- Bardhan describes the nature of pre-1991 policies as resulting from logical, Hirschman has pointed out that, in economics, ‘interest’ . “a system of political gridlock originating in the collective action 16 can fruitfully refer to one’s material advantage only. An ‘eco- problems of a large, heterogeneous coalition of dominant inter- nomic man,’ so pursing his material advantage, has little use for any est groups with multiple veto powers, and with no interest group ideology—those “collectively held normative and reputedly factual powerful enough to hijack the state by itself; the system thus 17 ideas and beliefs.” settled for short-run particularistic compromises in the form of But several economists have found the conception of economic sharing the spoils through an elaborate network of subsidies and man to be unsatisfactory. One form of departure from such a con- patronage distribution, to the detriment of long-run investment 10 ception is to allow for other motivations in addition to self-interest. and growth.” The liberalization in 1991 occurred because “there ‘Fellow-feeling’ or sympathy, which Adam Smith talked about at has certainly been an increase [in the lead up to the liberalization] 18 length, can be one.