Moral Failures

There are no magic bullets for India’s economic crisis

Elites, in their high-rises and gated communities, tend to have little interest in policies that foster equal opportunities. Agricultural distress bears down on a large number of farmers, and urban growth provides too few jobs. Viviane Moos / Corbis / Getty Images
01 July, 2023

IN THE DOCUMENTARY The Fog of War, the former US defence secretary Robert McNamara says that if the Americans had lost the Second World War, they—especially, he—would have been prosecuted as a war criminal for fire-bombing Tokyo. His message was that the victor sets the rules and writes the narrative. Today, Indian and international elites, refusing to confront the economic and moral crisis India faces, have established a dominant narrative of a rising India poised to make generational leaps with the power of digital transformation.

In betting on an Indian decade, even an Indian century, commentators are playing a high-stakes game with house money, at no risk to themselves. The risk falls on hundreds of millions of Indians trapped in distressed agriculture or in the pool of unemployed, underemployed and poorly-paid urban workers. The pursuit of magic bullets leaves the fundamental tasks of economic development dangerously undone.

To understand the hazards that India faces, consider the two development paths taken following the Second World War. East Asian nations followed Japan’s pre-war example. They invested heavily in human capital, including in mass education and health, in the inclusion of more women into the workforce and in labour-intensive manufactured exports. They experimented with high-risk industrial policy, but never lost sight of the core goals of human development and job creation. As a result, they created economies that were, at the same time, egalitarian and rapidly growing. The overwhelming international evidence is that an economic strategy that promotes a fair sharing of the pie also enlarges the pie rapidly.

Latin American countries followed the other development approach, one that gave low priority to human capital and labour-intensive manufacturing. Brazil is the poster child for this strategy. From early in the post-war years, its growth came to depend on finance and real estate. Agribusiness and export of commodities created a large source of foreign exchange, which bid up the price of the Brazilian currency. This, in turn, undercut the potential of labour-intensive manufactured exports. And, as labour congregated in the informal sector to provide low-end goods and services, the country found itself burdened by a gargantuan and stubbornly persistent inequality, which remained immune to redistribution efforts even under the left-leaning president Luiz Inácio Lula da Silva. Brazil bifurcated into two countries. The elites, in their gated communities, had little interest in policies to foster equal opportunity. Citizens in the other Brazil came to rely on precarious jobs, struggled with poverty and were often compelled to pursue criminal careers. New technologies—WhatsApp and e-commerce—blended into the favelas and open sewers of vulnerable Brazilians.