Open Forum

New Delhi, 21 January 2015

Economic Reforms

TIME FOR WELFARE CAPITALISM

By Dr S Saraswathi

(Former Director, ICSSR, New Delhi)

To meet the fiscal deficit target for this year, it is reported that the Central government is working on drastically cutting down allocations in the social sector and avoiding cut in infrastructure allocations. The latter is viewed as growth-oriented and necessary for promoting the nation’s economy. Even the target for public health expenditure seems likely to be reduced from 4-5% of the GDP as required to reach the Millennium Development Goal to an achievable 2.5% of the GDP.

Reducing poverty and boosting economic growth are the twin objectives of the Government today. These have to be reached through economic reforms dictated by globalization of economy. It demands what once former Finance Minister Yashwant Sinha said that economic reforms should be “guided by compassion and justice”. Indeed, a big challenge to the Government.  

The Indian Constitution has guaranteed certain fundamental rights and also declared certain directive principles of State policy. These principles, once considered non-justiciable were elevated in status by a judgement of the Supreme Court in 1970. It stated: “The mandate of the Constitution is to build a welfare society in which justice, social, economic, and political, shall inform all institutions of our national life. The hopes and aspirations aroused by our Constitution will be belied if the minimum needs of the lowest of our citizens are not met”.

This mandate is well entrenched today and underlies broader interpretations of several of our rights. Right to life and liberty includes right to life with dignity. What follows is right to food and right to education. A massive national employment guarantee programme also stems from the right to food. All these have not clashed with the dictates of globalization.

The idea of “rights-based development” is getting established through a number of court pronouncements in India. There is tacit acceptance by policy makers that those unable to realize their rights cannot realize their full capacities as human beings and cannot contribute to development. They are marginalized untouched by the fruits of liberalization or development.

Inclusive growth – the theme of the 11th Five Year Plan (2007-12) – is another concept   accepted as equivalent to all-pervasive improvement in the quality of life touching all weaker sections of society. There is a general idea that liberalization and globalization which give precedence to market have caused exclusion of many sections of the people from participation in production and from the group of beneficiaries of that economic process.  However, many economists agree that liberalization has on the whole led to reduction in poverty and improvement in the economic conditions of people across the world.

In this context, the question who all benefit under the new economic policy arises again and again without a standard answer.

The welfare State concept, endorsed by pragmatic liberal theorists, requires the Government to play a major role in promotion of economic and social well-being of the people directly as well as indirectly. Providing for minimum needs must be accompanied with availability of equal opportunities, equitable distribution of wealth and goods, and special care of those unable to fend for themselves and take their share.

There are a number of models of welfare State. In all these, public support for social welfare policies and programmes through the Government forms an important part.

Modern welfare States emerged first in societies that underwent rapid economic growth with industrialization. State-sponsored social welfare became necessary and was possible because of surplus production and affluence that could be diverted to education, healthcare, housing etc. Developed countries have become welfare States capable of developing individual welfare as well as collective progress.

It is therefore, wrong to imagine that only developing and underdeveloped countries need to promote welfare State model. All advanced developed countries in Europe, America, and elsewhere are capitalist welfare States which are also facing difficulties in coping with the dictates of globalization.

The problem in India and many other developing countries is the thrust of globalization before realizing the full potential of a welfare State. With problems of illiteracy, malnutrition, slum living and awfully inadequate basic amenities for a healthy life, India has to take on the challenge of global economy. A new model welfare State has to take shape which has to provide for growth and equity through capitalism which some prefer to call welfare capitalism.

However, the freedom of the nations to determine their social policies are somewhat restricted by compulsions of global trade and cut in social spending on welfare ideals.  Markets overtake producers, consumers and clients. Employment cuts in various ways including compulsory acquisition of land for development projects works antithetical to welfare concepts. There is struggle to continue subsidies while prices keep rising without corresponding increase in  purchasing power of the people. Under these circumstances, the size and scope of welfare measures of non-productive nature are bound to fail.

While a few fortunate people like Government servants are rewarded with pay rise and allowances for price rise and those at the bottom are taken care of with doles and bare minimum pensions, bulk of the population in the middle are oppressed under the new economy without relief from welfare ideals. It seems that developing countries have to pay a heavy price for lagging behind in industrialization in various forms not just economic. The middle class needs welfare schemes.

It is time to amend old order welfare ideals like doles and subsidies which still continue under popular pressure and humanitarian outlook and openly as political bait to capture voters.  New welfare approaches need to be evolved though the goal remains the same. Growth and equity are to be simultaneously fostered.

The answer is improvising an advanced welfare model which will replace doles and subsidies with opportunities for learning and employment with healthy living. Such a model will encourage the poor to accept economic reforms voluntarily. Just as the old model was a device of public pressure and preferences, the new model must become the choice of the people.

It is the job of political parties and pressure groups to influence people to adopt new welfare concept. Unfortunately, they are indulging in competitive populist politics unmindful of its economic outcome. It is time to prevent politics from becoming an enemy of economic progress; and more specifically to control distributive politics from playing spoil-sport for productive development.

India needs a strong and financially sound social sector planning which should include continuation of subsidies. But, the tendency to make subsidies the main feature of welfare State is neither possible nor desirable. Our immediate task is to prepare people from all strata to accept reforms as the road to reach the welfare ideal.

Necessary adjustments in politics or economics to bring about an appropriate model of capitalist welfare society have to be made. Growth must come through employment and production. Distribution must not be indiscriminate. Any conflict of interests between welfare State and economic reforms must be bridged. --- INFA

(Copyright, India News and Feature Alliance)