#164 Two Perspectives

India Policy Watch: The Indispensability of Economic Growth

Insights on burning policy issues in India

— Pranay Kotasthane

Shruti Rajagopalan and Lant Pritchett's of India conversation is full of insights for all public policy students. From that conversation, there was one particular claim that I want to discuss this week: economic growth is not just necessary, but also a sufficient condition for reasonably high levels of human wellbeing.

Over the last few years, many people have grown sceptical about the very idea of economic growth. There is a whole cottage industry of experts and non-experts ready to diss economic growth in pursuit of other ‘worthier’ goals such as sustainability or inequality. This thinking is morally problematic given that economic growth is the only mechanism to reduce large-scale poverty in India.

Anecdotally, it is tougher to convince Indians born after 1991 in economically well-off families—and connected to the global conversation on development—about the centrality of economic growth.

Sometimes, the pushback against growth is not along the lines of "but, this is not the right way to achieve economic growth". Such pushback would've been desirable. Instead, some people firmly believe that India doesn't need economic growth anymore; it's had that enough. They argue that governments should now focus on redistribution to reduce inequality and directly tackle social progress indicators, moving beyond income progress indicators.

Even though we keep highlighting how every percentage of growth brings roughly two million Indians out of poverty, this policy narrative seems to have become stale. Instead, the counter-argument often is: if Bhutan is focusing on ‘providing’ happiness, why shouldn't we?

The confusion about the importance of economic growth is not just a non-academic one. Economists themselves have pushed this line that programmatic changes to specific schemes can bring significant changes to human wellbeing. Even those who advocate growth feel it necessary to qualify it as "inclusive" or "sustainable".

It is in this context that the paper National development delivers: And how! And how? by Lant Pritchett is an absolute must-read. Here's the abstract:

National development is empirically necessary and sufficient for high levels of human wellbeing. Measures of three elements of national development: productive economy, capable administration, and responsive state, explain (essentially) all of the cross-national variation in the Social Progress Index (SPI), an omnibus indicator built from 58 non-economic indicators of human wellbeing. How national development delivers on human wellbeing varies, in three ways. One, economic growth is much more important for achieving wellbeing at low versus high levels of income. Two, economic growth matters more for “basic needs” than for other dimensions of wellbeing (like social inclusiveness or environmental quality). Three, state capability matters more for wellbeing outcomes dependent on public production. These findings highlight the key role of national development—and particularly economic growth—as instrumental to increased human wellbeing, which is increasingly challenged in favor of “small” programmatic and project design which is, at best, of third order of importance.

Let's discuss these important meta-claims, which have a bearing on any field of public policy.

Claim #1: Redistribution isn't the answer; economic growth is.

Most of the world's inequality is between countries, not within countries. So inequality reduction is overwhelmingly a national task. And you cannot do redistribution if your income levels are low as the size of the economic pie is too small to create a difference meaningfully. Rich country governments spend up to 40% of GDP precisely because it is possible to collect higher revenues from a more affluent population, even at low tax rates.

Claim #2: Wellbeing is the outcome; national development is the output

The three indicators of National development —GDP per capita, state capability, and democracy- explain all the Social Progress Index (SPI) variations, a non-economic index comprising 58 indicators. There are no countries with high levels of national development and low levels of social progress. Similarly, no countries have managed high levels of social progress at low levels of national development. In other words, wellbeing is the outcome, and national development is the output.

Here’s the striking chart in the paper which explains this relationship.

Claim #3: Economic growth is much more important at low levels of income

There can be no one global pathway to social progress. Priorities of richer countries will be different from the priorities of the developing countries. The 58 indicators of SPI can be clubbed into three main categories —Basic Human Needs (e.g. water and sanitation, safety, nourishment), Foundations of Wellbeing (environmental quality), and Opportunity (personal freedom and choice). The paper empirically shows that economic growth matters immensely for fulfilling basic human needs. As long as we agree that basic human needs such as water and sanitation, safety, and nutrition are essential to social progress, economic growth is indispensable.

I think this paper deserves more attention, especially in the Indian context. We tried to discuss this idea on Puliyabaazi as well.

Global Policy Watch: Information Age Politics vs Full Spectrum Warfare

Indian perspectives on global events

— Pranay Kotasthane

The economic and technology sanctions have understandably generated much global debate ever since the Russia-Ukraine war began. These sanctions are intended to expressly hurt Russia’s financial and trade systems, and cut its access to cutting-edge technology. We have earlier discussed how to think about the direct sanctions imposed by the US and EU from an Indian perspective.

While these measures were expressly aimed at Russian political and economic elites, the effects have spilled over into the ordinary lives of ordinary Russians. That’s because several tech companies have also entered the fray. Google Pay and Apple Pay suspended billing, Amazon suspended shipping of all retail products, and Microsoft suspended all sales. As of March 26th, more than 450 companies had joined the bandwagon. Some have shut down their Russia operations completely, some have suspended operations temporarily, some others are scaling back operations, while others have put new investments on hold.

These seemingly synchronised actions by Western governments and companies have set the alarm bells ringing in India. For those who believe that the ultimate goal of economic policy is to reduce import dependence, these measures act as tailwinds. From their perspective, these instances prove that Western companies and governments are all joined at the hip. The separation between the state and markets is a lie. To them, all these withdrawals are coordinated to achieve a strategic objective—they are a part of a planned package to achieve control over Russia in all dimensions of the battlespace. In other words, they are a display of the West’s full spectrum dominance.

Framed in these prominently military terms, the logic of self-sufficiency becomes a logical response. All foreign companies start appearing like attack ‘weapons’ in the hands of an adversary, while national champions—however inefficient—in all sectors of the economy become a matter of self-defence. Imports become evil, exports go down in priority, and joint development between private actors start getting scrutinised by government officials.

As you can gather from my tone, this full-spectrum warfare is an inaccurate and counter-productive way to frame the ongoing events. Instead of being weapons in the hands of the West, I argue that these actions can be framed better as now ubiquitous instruments of Information Age politics.

Seen from this perspective, the spate of withdrawals by Western companies is not a part of a well-laid-out, coordinated plan by Western governments. Rather, it is a result of uncoordinated actions by companies which have willy-nilly become political actors in the Information Age. In that sense, these actions are not very different from some Indians breaking China-made TVs during the Ladakh standoff, or a NBA team manager showing support for pro-democracy protests in Hong Kong.

Even in the current case, there are several explanations apart from the ‘weaponised interdependence argument’ for why companies have withdrawn from Russia. One, it’ll just become too difficult to do business in Russia given the sharply falling rouble, and major financial uncertanties. Two, some companies have been booted out by Russian government on the grounds of ‘false propaganda’. Finally, there’s also a significant pressure from employees and customers, who are witnessing this war daily on their twitter feeds, and want to play their part in whatever way possible. This explains why even some open source software libraries have been modified to either cutoff Russian customers or delete files on Russian computers.

Seeing these actions not as full spectrum warfare but as a specific instance of a generalised phenomenon of Information Age politics is vital for India’s interests. The latter framing acknowledges that multi-national companies are geopolitical actors, but also leaves room for negotiations and bargaining, like all politics does. This lens permits taking the long view that technology collaboration with the West is necerssary for Indian companies to build their own complementary strengths. In an interdependent tech world that is here to stay much beyond the current war, this approach has a higher chance of success rather than national champions motivated by the outdated logic of reducing import dependence.

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HomeWork

Reading and listening recommendations on public policy matters

* [Article] This excellent Bloomberg article cautions that the second great age of globalisation might be coming to a close, unless the leaders act differently.

* [Article] In context of the International Women's Day, I went back to a question that has perplexed me for a long time: what explains the electoral insignificance of political parties by women and dedicated primarily to the issues that affect women? The linked article by Louise Perry is a good place to start the search for some answers.

* [Article] Another article on the tough road ahead for globalisation.

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