It’s close to a quarter of a century since the day that socialism in the former Soviet Union and Eastern Europe imploded spontaneously. There is now both a general awareness and a general consensus that the collapse happened because socialism as an economic and political system was fundamentally flawed. Over the years, the flaws opened up cracks in the system that, towards the end, looked more like gaping holes.

In India, our own extended flirtation with socialism came to an unhappy end a mere couple of years or so later. A lasting legacy of those years is widespread ignorance of what makes the free market economy tick. Whenever there’s a hint of trouble in the market place, and we hear all these shrill voices calling upon the government to intervene. Moreover, our reforms of 1991 began somewhat before the economy had truly collapsed (unlike in Eastern Europe). An offshoot of that happenstance is that many of us have only a half-baked understanding of the failings in socialism that so undermined this wonderful piece of theoretical construct.

There are some leftists who attribute the collapse to political reasons like a lack of the essential freedoms of a democracy. A Marxist economist I ran into spoke of a “democracy deficit” that let down an otherwise workable system. The conclusion is easily refuted. All you have to do is think of the major economic success stories in the last two decades. The most talked about example is China and we know very well this country has an acute democracy deficit. Singapore, a place that began its existence in the 1960s as little more than a collection of fishing hamlets, is now an economic powerhouse but far from being a model democracy. Hong Kong was administered for long as a colony by the British, without much of a say for the local people and that is how the Chinese are carrying it forward today. South Korea, Taiwan and Chile are democracies these days, but at the relevant points in history when their economies took off, they were dictatorships for prolonged periods.

There’s no escaping the conclusion that the collapse of communism was propelled by economic failure. It took 70 years in the making because the essential order and discipline of a militarised and totalitarian society allowed for some good things to emerge that papered over the cracks. Even as its foundation was eroding and the contradictions catching up, the socialist state managed impressive strides in education and healthcare and maintained a semblance of full employment. (What the output from “full” employment was, is a different matter altogether.)

When the collapse happened, the biggest pillar that gave way was the role of the government in the economic sphere. Under socialism, government was an overbearing presence, stifling creativity and enterprise and ennobling mediocrity. The example of collectivised agriculture in the former Soviet Union is telling. Of the total land under cultivation, 97 percent was cultivated by the government through collective and state farms. Private farming was allowed on the remaining 3 percent and it accounted for one third of the total agricultural output of the country.

When a government lords it over the economy in a totalitarian set-up, that disaster would lurk just around the corner is well understood these days. That a government in a democracy overtly committed to doing good to its people can also wreck the future for its own people is something we still have trouble grasping. Here, then, is a thought experiment that offers an elementary insight into why even well-intentioned intervention by democratic governments can go terribly wrong.

Imagine you are the top government official in a remote poverty-stricken district entrusted with the mandate of improving the lot of the people there. During your travels in the district, you come across a case of two neighbouring villages separated by a river. There’s frequent movement of people and a flourishing trade between the two sides which is carried on in country boats operated by a community of indigenous boatmen.

In a particular year, you receive an additional grant from the government to be spent on road and infrastructure projects. After careful thought, you decide to spend it on a bridge to connect the two villages. It makes so much sense given its potential to improve connectivity and access to markets, and integrate their economies. But, no sooner is the decision announced—although a thought experiment, this is still India—all hell breaks loose. There’s a virtual revolt by the community of boatmen. They fear, and rightly, that once the bridge is built, their livelihood will come to a halt.

Fortunately, unlike our current crop of bureaucrats, you are made of sterner stuff. So, even when you get a phone call from the local MLA, and then a distinctly menacing one from the MP, you remain steadfast. You are convinced this is what progress is all about. The likely harm to a few cannot and should not be allowed to hold back progress for so many.

And then one day, you receive word that the leader of the boatmen is at your office and wants to meet you. He walks in, a spare, lithe figure with the lined and weather-beaten face of one who works in the sun all day. He has a young boy with him. There is no hostility in his tone, only an abject helpless pleading. “In my family, like all of our community here, we have all been boatmen for generations. But my son (and he indicates the boy) is the very first to go to school. My only hope in life is to see him grow up with an education so that he does not become another boatman. But if that bridge goes ahead, that will be the end of an occupation for me and of school for my son.” The tears well up in his eyes and he looks down. This is a proud man but today he looks beaten. You look at his son and as he holds your gaze, his eyes have the same look of helpless pleading. It is a poignant moment. What you hold is a power that in its own way is greater than that of life and death. It is the power, literally, to make or break a life. And you must decide.

I’ll end my story here because the purpose was never to tell a tale but to make a point. It’s a simple point so often overlooked even though two decades have passed since we were forced into our own reforms. When governments overreach into the economic sphere and arrogate to themselves the powers to decide what should and should not be done, what can and cannot be done, decisions often go against the long term interests of its own people. This is particularly true in a democracy where there’s always a palpable need to be seen as being responsive to the people. Because, in practice, it is expedient to respond to the pressing concerns of a section of the people. To remain true to a diffused or generalised concern for the entire people takes uncommon courage and vision. Build the bridge, a community loses its livelihood. Isn’t it best to shelve the bridge then? Soon, it’s ten bridges that don’t get built. The steel and the power plants are up next and then the mines. Before you know it, you have hit the bottom of a very slippery slope.

When governments have a disproportionate say in economic matters, the people end up poorer than where the government’s role is limited to, and subject to, well defined and robust boundaries.

(Image Courtesy-Sodaahead.com)

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Ranjan Sreedharan

Ranjan Sreedharan is an independent thinker (and occasional writer) on the economics underlying politics. Not being a professional economist, he believes in evaluating ideas for what they are worth, without waiting for the data (or the macro-economic numbers) to show up. Back in January 2011, he gave a call that India was headed towards an economic crisis and since then has not seen any reason to change his mind. He works in corporate communications and can be contacted at ranjan.sreedharan@gmail.com