From Financial Express November 9, 2012

Inclusive growth in the US and India

The US Presidential election has just concluded, and Barack Obama has been re-elected. Voters in exit polls said they cared most about the economy, but what they really meant were their own material circumstances in the economy. What may have carried the day for President Obama was the sense that he cares more for the middle class (where almost every American likes to place himself or herself) than his erstwhile opponent. 

In fact, the choice between the two candidates illustrated clearly two very different conceptions of society and justice. Mitt Romney’s infamous remarks branding almost half of the country as lazy free-riders were in a centuries-old tradition of the rich justifying wealth as deserved through talent and hard work (or before that, as divine will). Romney and his party simply refused to recognise that inequality of opportunity has grown dramatically in the US, so that the growing inequality of outcomes is not determined on a level playing field. Growth in the US has been far from inclusive.

Barack Obama, on the other hand, has had a vision that is completely consistent with the idea of inclusive growth. Interestingly, in 2007, Ifzal Ali and Hyun Hwa Son of the Asian Development Bank provided a theoretical and empirical analysis of inclusive growth that resonates conceptually with Obama’s policies, as well as with what has been attempted in India. Ali and Son look at the distribution of opportunities across different parts of the income distribution. Thus, they focus on opportunities rather than outcomes such as income. In this, they are following the work of Nanak Kakwani and others. To make things concrete, they use access to health and education as examples of opportunities. They apply a specific index of opportunity to health and education data from the Philippines, to measure precisely how inclusive growth has been in that country.

As many have argued, health and education are to be valued in their own right, as well for their importance in helping to level the playing field for earning income. Barack Obama recognised this in pushing for wider and more equal access to healthcare, and for improvements in access to higher education through expanded federal student loan programmes. In some ways, then, the US agenda is not that different than India’s attempts to improve access to health and education across the country.

Of course the levels of development, institutional details, and scope and scale of challenges are very different in the US and India. One similarity, though, has been the lead role played by the federal (central) government in both countries, in health, especially, in the US. The American suspicion of government applies particularly to the federal government, and that has created a political battle over healthcare reform. But one only has to look at examples such as civil rights, the national highway system, and the GI Bill which funded college for returning World War II veterans of all socio-economic groups to realise that the Centre has played positive roles on major issues in recent US history.

In the Indian case, too, the justification for the Sarva Shiksha Abhiyan and National Rural Health Mission has been that the Centre needed to step up because the states were failing to do their part. The problem in India has been that central direction has tended to be confused with central implementation without adequate capacity, or more with a lack of consideration of appropriate incentives for modifying behaviour. Even in the US, these kinds of problems do arise, and the challenges for a poorer country like India are bound to be greater.

As I have argued in other columns, there is a case for considering innovations in revenue-sharing across levels of government, to improve the efficiency of expenditures, as well as to build government capacity in the longer run. The Ali and Son framework offers a way of comparing the distribution of improved opportunities, and hence the inclusiveness of growth in some important dimensions, for different types of policies and implementations. Hence, it should be possible to see if policy design and implementation at the state or local level does better than centralised decision-making.

In the US, my guess is that the successful Massachusetts experiment in universal healthcare would not have spread to other states, and the federal government’s push was very likely the right way to address the problem of lack of access to healthcare. The Indian situation is very different, though, in starting point and in scale. It might be worthwhile to give Indian states more resources and incentives to try and improve healthcare access themselves, with flexibility to innovate and experiment. If just Uttar Pradesh can pursue more inclusive policies, that would affect a population roughly the size of Brazil’s. That would be an impressive achievement.

 

From Financial Express, August 22, 2012

Towards a strategic foreign policy for India

In my last column, on India’s ‘global strategy’, I made several points. First, India should put economic growth at the centre of its foreign policy. Second, it should pursue knowledge and capital eclectically and vigorously from around the world, to support this goal. Third, attention to infrastructure in telecommunications, energy, roads, ports and airports is vital to national security, beyond the obvious economic benefits. Fourth, China’s rise is the main global strategic issue for India. In this column, I want to develop the implications of these points for foreign policy in practice.
I will begin with the last point, the implications of the rise of China. India has to deal with China in an accommodative way (there is no choice, given geography and history) but from a position of strength. Economic growth will not be sufficient to achieve this position of strength, especially in the short run. Therefore, to mitigate security risks, India has to engage in deeper strategic cooperation with other nations. Such cooperation goes beyond the conventional military dimension. On that front, the United States is almost the only game in town. A critical new front for strategic cooperation is information-sharing. Here, too, the US has enormous strengths, and a vital role to play, but there are other possible partners. Most such potentially valuable partners, however, have strategic ties to the US. The conclusion is inescapable that India has to deepen its strategic cooperation with the US. This is nothing like the Cold War world of treaties and alliances. It is about India assertively and systematically pursuing its interests in a framework of mutual benefit.

Is there a downside to closer strategic cooperation with the US? Will there be a cost because it offends China, or reduces India’s strategic autonomy? The answer must be ‘no’. Such cooperation strengthens India’s capabilities, especially if it focuses on learning (and it has more to learn than the US, in such cooperation). Will it provoke China? Not if it is done intelligently. And if the counter argument is that India should not seek to protect its security for fear of upsetting China, then that says that China is anyway reducing India’s strategic autonomy.

Given the necessity of strategic cooperation with the US, it becomes more important for India to seek economic ties more widely. Luckily, there are many alternatives here. In fact, barring higher education, information technology and some aspects of agriculture, US capabilities are not necessarily the best choices for India. To take a prominent example, US-style mass market retailing as it has evolved in the past decades may not be best suited to India’s geography and infrastructure. In renewable energy, mass transit, high-end engineering, consumer durables, mineral extraction and so on, Germany, Britain, Japan, South Korea, Australia and numerous other economies may have more to offer India in terms of knowledge bundled with investment. A diversity of economic ties acts as a counterweight to the narrowness of options for strategic cooperation.

To summarise, India has to integrate economic growth goals more clearly into foreign policy. Its diplomats should speak the language of commerce, and its business people should speak the language of the country they seek to do business in. (Wouldn’t it be wonderful if India invested heavily in foreign language training, not just for its superb diplomats, but also for its enterprising business people?) It has to pursue commercial engagement more actively across the globe. At the same time, India has to deepen strategic cooperation with the US, and existing strategic partners of the US. This is not about diplomatic treaties and grand alliances, but really about lower key information-sharing and security cooperation in all its modern forms.

Foreign policy is about pursuing national interests in the international arena. Sometimes, this means cooperating with other nations that have different political systems and values. Nixon famously went to China in pursuit of national interests, when China was still wedded to Maoism. But China wanted economic growth from that new engagement, and it succeeded. India has to deal with China, for many reasons, but not for reasons of strategic balance. India has little to offer China except resources, markets and acquiescence, and so is in a weak position. It has to strengthen that position.

Luckily, India has alternatives for strategic and economic cooperation with nations whose political values align well with India’s ideals. Even if shared values are not of importance in determining directions of international engagement, they are a useful bonus, as they enhance trust and cooperation. But ideals should not get in the way of national interests, and they should not be pushed on others. In any case, India has much to do on the domestic front before it can claim to be an international example of virtue. The bottom line remains that India’s government has to deliver greater material and non-material well-being for its citizens. Foreign policy is just one aspect of that larger challenge.