India is not doomed to be poor due to factors outside its control. Yet India is desperately, depressingly, chronically, and acutely poor. Why is that so and what is missing? I explore this question in this piece which is part 2 of a series I am writing for NitiCentral.com. Part 1 was “All Men are Created Equal but Nations are Not.”
India Suffers from Bad Governance
Leo Tolstoy’s book Anna Karenina opens with the line, “Happy families are all alike; every unhappy family is unhappy in its own way.” That observation about failed families, which has since been generalized as the “Anna Karenina principle,” also appears to apply to poor countries: countries are poor in their own unique ways.
There are multiple causes in any specific instance of the poverty of nations. They differ in the particulars but some generalizations are valid. For instance, the causes of poverty among small countries generally differ from that of large countries. Small countries are at the mercy of forces that are outside their control. Unlike large countries, they are easier to dominate militarily or exploit economically. Landlocked countries, which are likely to be small, have a harder time in the global economic game as opposed to countries with easy access to world trade.
Countries often suffer poverty for surprising reasons. Contrary to what one would expect, being richly endowed with mineral resources can actually be a curse rather than a blessing for a country. Intense and protracted struggle for capturing those riches can lead to widespread poverty instead of prosperity. Still others may have the disadvantage of geography. Tropical climates and their associated diseases are a burden while temperate climates confer a distinct advantage.
Of course, all small countries are not uniformly poor. Indeed some of them are extremely rich. It is useful to underline the fact that the prosperity or poverty of small countries arise from causes that are often enough outside their control. Large countries, in sharp contradistinction, are rich or poor for reasons that are entirely their own choosing.
Let’s focus on India, a very large country. As mentioned in the previous column in this space (“All Men are Created Equal but Nations are Not”), factors that could lead to persistent poverty are missing in India’s case. India is not starved of natural resources; its people are not lazy and stupid; invaders don’t repeatedly strip India of its wealth; massive periodic calamities do not level everything in sight; death and disease do not plague the land; it is not bereft of history, of culture or a deep civilization; constant civil strife between warring factions does not foreclose the possibility of any economic activity, and so on.
In other words, India is not doomed to be poor due to factors outside its control. Yet India is desperately, depressingly, chronically, and acutely poor. Why is that so and what is missing?
Before moving ahead, I should pause to say that every time I have made that depressing observation about India’s poverty, some people have vehemently objected and said that India is not a poor country at all. Clearly their evaluation of India differs from mine. I could point to depressing statistics but I will avoid doing that here. You either know it or you don’t. If you don’t, I don’t wish to go into them here. I will assume that it is there for the record.
That’s the bad news; and now for the good news. My fundamental argument is that India’s poverty is entirely man-made, self-inflicted and avoidable. The good news therefore is that India’s poverty is not irredeemable and unalterable. India can achieve its potential and become as prosperous as is possible for a large country with the natural and human capital it has at its disposal.
The primary cause of India’s persistent poverty is poor governance. Every other factor shrinks into insignificance when compared to poor governance as the causative agent for poverty of a large country like India. Even if all other factors of prosperity are available in plenty, the lack of good governance is sufficient to doom a country into grinding poverty.
Governance is what governments do. Governments are not accidents of nature. They are artifacts that have to be consciously and deliberately constructed. They come in various kinds: authoritarian, democratic, socialist, communist, et cetera. But they have one thing in common. Regardless of the type, if they fail to provide good governance, the country suffers.
So here’s a simple heuristic to figure out if you have good governance: if a large country like India is suffering, you don’t have good governance. You don’t have to be an expert on governance to know that if all other factors are quite fine, by a process of elimination you know that it must be bad governance that is root of all the misery.
Another simple heuristic for us is that a large government is more likely to fail to provide good governance. In the case of governments, small is not just beautiful, it is essential. If the government is attempting to do too many things, its primary failure will be in providing good governance. Why this is so can be traced to the fact that government comprises of people – just like you and me. People have their motivations and objectives. We are self-seeking people with bounded rationality and imperfect information. If we attempt to do too many things, the things that we should be doing get inadequate attention, and we end up doing things we should not be doing.
What is the most essential role of the government? It is to protect the rights and liberties of individual. Note it is not there to grant rights and liberties but rather to protect those rights and liberties that individuals have ab initio. Also note that the proper object of attention here is the individual. The life, liberty and property of an individual must be protected by the government from other individuals and also from the people who are in government.
If the government fails to perform that essential function, and instead does what it has absolutely no competency in, then you end up with poor governance and an impoverished society. India is a shining example of that failure.
There are endless examples of areas where the government interferes and does things that are unnecessary and wasteful. Let’s take just one example: running a commercial airline. There is absolutely no reason for the government to do so. It loses huge amounts of taxpayers’ money. The performance is abysmal and an embarrassment.
But of course there is a reason why the people in government want to have a government airline: it is their own private airlines that they get to play with while the poor people – people who will never see the insides of a plane – pay for it. A private airline that lost as much money as the government airline does would have been eliminated by the market. But the government is not subject to the discipline of the market. Or more accurately, the people in government are not subject to market discipline and therefore their fondness for the government encroaching into areas that is the natural preserve of the private sector.
The most pernicious effect of big government is that it breeds public corruption. Corruption is always bad but in the private sector, market discipline weeds them out. But public corruption – the kind only the people in government specialize in – has a side-effect that is hard to miss: it leads to bad governance.
So in summary, big government leads to corruption. Corruption leads to bad governance. Bad governance gives rise to mass poverty. Each of these links is worth examining, and which I will attempt to do in future pieces.