brown — you’re in luck apparently. According to many, the right honourable PM Manamohan Singh seems to be leading India there

free markets are all very well but i think you ignore history and politics at your peril.

bombayplan — I bow to your wisdom.

” Adam Smith’s invisible hand – the idea that free markets lead to efficiency as if guided by unseen forces – is invisible, at least in part, because it is not there. ” – Joseph Stiglitz

The main reason why India (and many other countries from South America, Central America, Africa) defended tariffs in Doha round was that governments in Europe and US were not ready to similarly remove their own trade distorting tariffs and subsidies. US government pays huge subsidies to its cotton and corn farmers and at the same time insists that developing countries shouldn’t do so. The subsidies issue in US baffles me because in case of cotton the top 7.2% of the cotton farmers in the US get 86% of the cotton subsidies. This top 7.2% is almost invariably big agribusiness companies and not individual farmers. Brazil recently won a case against the US in the WTO on this very issue.

I agree that there are several laws that apply to investment in agriculture and trade that crosses state boundaries in India which simply don’t make sense and hamper employment generation in rural areas. Also NREGA coupled with RTI act of Oct 2005 has the potential to be implemented cleanly without corruption.

However with regards to removal of tariffs and subsidies to the farmers I believe that this needs to happen across the board in all countries. So far US has been pushing free trade agreements (NAFTA, CAFTA, WTO negotiations) which call for removal of subsidies and tariffs in other countries without showing the willingness to do so at home.

bombay plan, i completely agree with most of what you say except a few nitpicks. first, the state does not always have the incentive to intervene “developmentally”(i.e. in the ‘right’ way); that is why labor unions etc. are so important. they provide a countervailing force both to organized business interests and the organized bureaucracy (otherwise it becomes a positive sum situation between the state and business, as the latter demand and receive protection against competition). vinod is theoretically correct in observing that if all markets were equally competitive (not just the labor/primary producer market)some gain would accrue to producers. but as herbert simon has pointed out, sufficiently competitive markets rarely exist; reality (as it exists) is a world of organizations and firms.

a second (very minor) point is about the arrow-debreau theorem. you are right in that they assume the enforceability of contracts, and this opens up a role for the state. but this role is not always necessary (again in theory), since many contracts are self-enforcing (i.e. they are nash equilibriums). this is a minor theoretical point since in reality there are far too many variables. also there are other mechanisms than the state to enforce contracts (social pressure etc.), but these can mostly function only within particular communities or groups where ostracization has real costs for the individual being ostracized.

Hear! hear! Bombayplan, you da man!

Well said! The most efficient free markets in the world today are successful precisely because their governments were, at least in the initial stages, proactive on a selective and strategic basis. The operative word is strategic, which most planner types either do not get or shun completely because it limits their power base. Your reference to education and health as two sectors of the Indian economy ill suited for the free market really resonated with me. I wish the US would recognize the same reality as far as health care is concerned.

Your comments voiced the concerns of rural/agricultural India that probably accounts for more than 80% of the Indian population and will be forced to wait another 50 years before the free market bounties trickle down to the last village.

Couple of my uncles and cousins are farmers and still live in a village and I would be a rich man today if I got a rupee for every time I heard them bitch about the bureaucrats and mai-baap sarkar. From what I hear from them, they do not care for things like FREE power or the sops that the government throws at them. All they want is better connectivity (better infrastructure) with the towns/sabzi mandis and lifting of onerous restrictions on where they can sell their produce etc. What they need is for the government to get out of their way. For them, schemes like NREGA are a total waste of time and money.

And I am not sure if this means anything or not but my cousins wants their kids to be anything but farmers!!

If I recall correctly, NREGA was the brainchile of Jean Dreze, a belgian economist living in Delhi.