Dr Bharat Jhunjhunwala
Modern political thinking holds that individual freedom may be restricted to secure public good. The freedom of the businessman to indiscriminately promote the consumption of cigarettes, for example, has been restricted. Manufacturers are required to display a warning stating that smoking is injurious to health. The use of harmful chemicals in eatables, manufacture of polluting vehicles, and reservations for Small Industries have been imposed in order to promote public good even though freedom of the individual is restricted.
This principle of ‘earning profit while promoting public good’ stands opposed to the principle of free market. Famous economist Adam Smith had propounded this principle about 200 years ago. He said that competition in a free market spontaneously establishes public good as if an invisible hand was guiding the businessmen. There was no need to separately worry about public good or to impose restrictions on businesses. His logic was like this. Competition in the market pushes the businesses to produce goods at lowest cost. This leads to cheap goods being made available to the people. For example, I had brought and electronic calculator from United States for my father in 1973 for 100 dollars or about Rs 1,000 at that time. Today a better calculator is available for Rs 50 because of the improvements brought about by competition. The slum dwellers today have the pleasure of watching the TV and drinking cold water from the refrigerator because of the steep reduction in the price of these goods. Thus Adam Smith suggested that the Government must not interfere in the market. Public good will be secured automatically by leaving the businessmen to compete with each other.
Two mutually contradictory principles for securing public good are present before us. Political theory says that the Government must intervene in the market and give it a proper direction. Economic theory of Adam Smith, on the other hand, says that Government must keep its hands off the market and let the businesses determine the type- and price of goods that are manufactured. Our Government is basically following Adam Smith’s principle. Big companies are being given freedom all around. They are free to sell pan masala and bhujia in plastic pouches while the homemaker is prohibited from bringing vegetables home in a plastic bag.
The provision of forcible appropriation of land that was made for emergency situations such as that of war is being routinely invoked by state Governments to acquire land of helpless farmers for the making of hydropower dams. Protection hitherto provided to small and medium industries is being dismantled in favour of big companies. The all pervading direction of Government policies is to provide unrestrained freedom to the businessmen to operate as it pleases them.
According to Smith’s vision, this would spontaneously lead to the establishment of public good. But such is not seen to happen. Increasing Naxalite activities are indicative of the deep unrest among the people. The selling of junk foods, synthetic clothes and air-conditioners is leading to deterioration in the health of our people. That said it must be admitted that the material well being of the common man has improved. The poorest have available to them ample food grains provided under BPL schemes and minimum employment under the Employment Guarantee Scheme. But this definition of public good is lopsided. Increased consumption is coming along with unrest due to increasing inequality and deterioration of health of our people. Adam Smith’s formula is not delivering on a holistic consideration.
It seems to me that the Government has wrongly understood Adam Smith’s formula. The debate in the nineteenth century at the time of Adam Smith was between feudal and capitalist modes of production. Most of Europe was ruled by feudal lords. Production was undertaken under protected barriers of the feudal estates.
This led to much inefficiency. A feudal lord could have grains ground at three times the cost than the market because his economy was protected from competition. Adam Smith rightly said that such method of production was inefficient. This did not mean, however, that there should be no control of the Government on the market. Adam Smith advocated free markets only for such items that were deemed to be ‘good’ by the Government. If cloth had to be produced then it was better to have this done by competition in the free market rather than under protected environs of the feudal estates. Smith did not say that the market should be allowed to make harmful synthetic cloth, cigarettes and liquor. Just as the teacher encourages the students to compete in the game of football but does not allow them to compete in fighting with knives and swords, similarly the production of good things should be left to competition in the market. Mainstream economists have perverted Smith’s principle.
They have declared that the Government has no role in determining what goods are produced and how. In the result big companies are undertaking production with automatic machines and rendering millions of weavers and farmers jobless. Just as a seemingly clever patient misuses the freedom to walk in the evening to see a movie and suffers in the end; similarly our seemingly clever Government is giving the businesses the freedom to produce cigarettes and liquor and hapless people are suffering.
The economic policies of our economist Prime Minister should be evaluated in this background. The objective of providing food, clothing, shelter and jobs to the people can be secured in two ways. One way is to impose huge tax on job-eating big companies. Heavy taxes imposed on bottled soft drink manufacturers will lead to the revival of the rasvanti and also provide nourishing and healthy fresh cane juice to the consumers. Or heavy taxes imposed on sugar mills will lead to the revival of the jaggery industry and provide healthy sweetener and also create more jobs. Or taxes imposed on power looms will revive the handlooms and provide self-respecting employment to the weavers.
Restrictions will have to be imposed and the free writ of the business cut short in this policy. The second way is to give free run to big companies producing bottled soft drinks, sugar and cloth and allow them to destroy the small businesses. Then taxes can be imposed upon these same big companies and the revenue used to provide cheap food grains to BPL families and limited employment under the Employment Guarantee Scheme. Big businesses are given a free run in this approach. The Government has adopted this policy. In the result Naxalite activities are increasing and health of our people is deteriorating. Therefore, our economist Prime Minister should make a true reading of Adam Smith and embrace free competition only to the extent that it secures public good.
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