#ThrowbackThursday: B R Shenoy — Planning and Social Justice (1961)
In this week’s selection for Throwback Thursday, we bring to you a piece by one of India’s most prominent free-market economists — B R Shenoy. In this article, originally published in ‘The Times of India’ in October, 1961; Shenoy talks about the inadequacies and wastages inherent in central planning and control of economic activity. While the avowed goal of central planning was to ensure ‘social justice’; the outcomes of planning were far from just, for the majority of India’s masses. True justice could only be achieved, Shenoy remarked, when economic activity served the needs of the people; and when it was subject “to the sovereignty of the consumer”. B R Shenoy was one of the most vocal critics of state planning and regulation of economic activity — his remarks on the redundancy of planning and importance of economic freedom ring true even today.
The economic content of “social justice”, a prime objective of planning in India, is broadly threefold: raising the living standards of the people, liquidating unemployment and preventing concentration of economic power. To raise the living standards, economic activity must be geared to producing the consumer goods needed by the masses. In our background, the bias should be heavily in favour of increasing the production, among other necessaries, of food and cloth. This is a moral obligation, the consumption of food grains being well below the nutritional norm of 18 ounces per head per day and the consumption of cloth deplorably sub-standard.
When economic activity is subject to the sovereignty of the consumer, it would naturally subserve his needs; his daily purchases in the market will steer productive activity to match his preferences. If the sovereignty of the consumer over the market mechanism is tampered with, there is less guarantee that the consumption of the masses will go up commensurately with the national product. The consumption needs of the masses are often the first victims of statism, though statist slogans deify “public good.”
Since the intensification of planning in India after 1954–55, the aggregate national product rose in six years by 22 per cent. But per capita consumption of food grains and cloth has fluctuated downward: the former, 15.7 ounces per head per day in 1954, was 15.4 ounces in 1960 and the latter 14.63 metres in 1955; was 14.36 metres in 1959.
The principal factor responsible for this is that investment activity is dominated by the State and only fractionally or secondarily by reference to the needs of consumers. In the Second Plan the public sector appropriated 58 per cent. (Rs. 4,600 crores) of the available investment resources for the production of capital goods, intermediate products and social overheads. The corresponding figure in the third Plan is 66 per cent. (Rs. 8,000 crores). Parts of the rest of the resources aye also directed arbitrarily into capital goods trades through the exercise of control over capital issues, import licences and the establishment or expansion of industrial undertakings.
Experience has shown that once control over investment is taken over by the State, the demands of the public-sector being insatiable, justice to consumers might get deferred indefinitely. The public sector outlay of Rs. 1,960 crores in the first Plan more than doubled in the second Plan (Rs. 4,600 crores) and is more than four times as much (Rs. 8,000 crores) in the third Plan. There lurks behind statism some built-in investment accelerator akin to Parkinson’s law. In Russia, after 45 years of planning, acute scarcities of meat, clothing, shoes and house-room persist, because of the unabating demands of heavy industries, mammoth power and irrigation projects, rocketry, nuclear weapons and space science.
Social injustice is writ large in the trend of our pattern of production. During the decade ending 1960, the output of capital goods rose from 2.2 times (machine tools) to 4.1 times (commercial vehicles); and the output of intermediate products, from 1.6 times (coal) to 9.0 times (caustic soda). By contrast the output of consumer goods rose by much smaller multiples, from 1.1 times (matches) to 1.8 times (soap). The output of cotton cloth in common use rose to 1.4 times. On the other hand, the needs of the comparatively well-to-do people, a fraction of the population, have been very well looked after. The output of goods entering into their consumption, which are mostly curios to the masses, generally rose steeply- electric lamps 2.9 times, electric fans 5.1 times, radios 5.9 times, sewing machines 9.6 times, and rayon yarn 21 times.
Social injustice is reflected too, in the price structure. The output of consumer goods being unduly restricted through the forced transfer of resources into non-consumer goods industries, the prices of food articles during the past six and a half years rose by 48 per cent., of cereals by 53 per cent. and of textiles by 23 per cent. The prices of luxuries and semi-luxuries generally, on the other hand, remained comparatively steady until recently, raising only latterly and by a much lesser order.
Social justice through the liquidation of unemployment demands the maximization of output from the available resources as expansion of employment rests on the expansion of aggregate production, not on the rise in the volume of investment regardless of the additions it makes to the national product. The choice of policy for maximizing output is largely determined by the prevailing production set-up and its occupational pattern. Fifty percent of the national income ensues from agriculture and 70 percent of the population draws its living from it, manufacturing industries accounting for less than 20 percent of economic activity. Peasant farming dominates agriculture, the number of farm families being 67 million and the average holding per family 5.5 acres. The rest of the economy, too, has tens of millions of independent production units. Cotton textiles, which account for 36 per cent of industrial activity, comprise two million hand-looms, 80,000 to 90,000 power looms and 478 large-scale mills. This occupational set-up cannot change overnight. First, it rules out centralised control of investment and production; secondly, it prescribes that modernization of agriculture offers the surest means of accelerating production.
To this must be added a more fundamental consideration. Each consumer represents a unique (and changing) scale of values and demand. In a community of several hundred million consumers production must comprise an innumerable and changing variety of wares, if popular well-being is to remain the prime objective of economic activity. The best results in production-and consumer satisfaction may be generally achieved only through a numerous body of independent entrepreneurs dispersed over the country-not through statist planning-especially as the production process reaches the final act of consumption.
During the past decade we have utterly disregarded the compulsions of both policy guides. Under high-sounding slogans and pretences, we have been regimenting economic activity more and more; forcing into the public sector and the non-consumer trades unconscionably large amounts of investment resources; developing heavy industries at the expense of consumer goods industries and developing both at the expense of agriculture, where the production and employment potentials are the highest among the three. The result is that despite phenomenal expansions of investment, our national income has risen, since plan intensification, at an annual rate of but 2.9 per cent. Whereas unemployment rose from 5.3 million at the close of the First Plan to 9 million at the close of the second and might be as much as 12 million at the close of the third. Under policies of economic freedom, national income might have risen at an annual rate of 8–10 per cent. and unemployment, instead of mounting up, might have tapered and, in due course, disappeared.
Statist policies have led to the concentration of economic power with the administration. All the imports, much of the exports, the bulk of investment resources and a great deal of economic activity are subject to State control and direction. This has endowed privileged groups of people-State functionaries- with arbitrary rights of disposal, directly or indirectly, over the employment, livelihood and well-being of virtually the entire nation. This is a potential source of ruthless social injustice-ruthless, among other reasons, because arbitrariness is backed by police powers.
Continued social injustice under all three heads is apt to co-exist with statism. Growing social justice cannot be ensured better than through policies of economic freedom on the pattern of the E. E. C. countries and Japan, where state planning is confined to its natural sphere.
You can access the original article here. Visit indianliberals.in for more works by Indian Liberals dating back to the 19th Century.
