Jayati Ghosh

Presentation for workshop on “Neoliberalism in Latin America and Asia: Who gains? Who

loses?: Flacso, Mexico City, 26 November 2012

GDP growth rates in India

1951-52 to 1964-65 4.01964-65 to 1974-75 3.21974-75 to 1984-85 4.11984-85 to 1994-95 5.31994-95 to 2004-05 6.02004-05 to 2009-10 8.6

The absence of progressive structural change is a fundamental underlying problem of Indian economic growthThe inability to shift most workers out of low productivity

activities has persisted through “planned” period as well as period of neoliberal economic reform.

Dramatic increase in aggregate income growth rates and organised sector profits has not been matched by increases in organised employment or even in total employment generation.

Worsening income and asset distribution are not just by-products but even necessary features of the growth process.

South Korea: “Kuznets-style” structural change

Mexico: Distorted Industrialisation

India: Inadequate diversification

Services as Kaldorian sector?

Dasgupta and Singh: In India this is not “pathological deindustrialisation” , since services form Kaldorian engine of growth, raising productivity because of the rapid technological progress in the “new services”, e.g. IT industry.

Chandrasekhar: Services growth reflects new dualism in India. Jobless growth in manufacturing. IT and IT-enabled Services are based on export of lower end software and IT-enabled services facilitated by the availability of cheap skilled labour. This is technology-aided extension of the earlier waves of migration by service-providers (e.g. doctors, nurses, blue-collar workers, etc.). Total employment still less than 1% of Indian workforce. This cannot play Kaldorian role.

Global financial integration was critical to India’s boomInternal and external liberalisation measures generated booms in

some domestic economic activities, as India became a favoured destination for global financial investors.

Capital inflows (mainly portfolio investment and external commercial borrowing) sparked a retail credit boom.

This combined with fiscal concessions to spur consumption among the richest sections of the population. This combined with other measures to provide incentives for large corporate investment. “Corruption” about which there is current outcry was integral to this process.

Rapid GDP growth, despite public spending on basic needs, poor employment generation and persistent agrarian crisis that reduced wage shares in national income and kept mass consumption demand low.

Rise in profit shares in the economy and proliferation of financial activities, even as real indicators (e.g. human development) remain poor.

New forms of primitive accumulation drove boom

• Nature: Expropriation of peasantry from land, privatisation of water and other natural resources, over-extraction and degradation.

• Petty production: Simultaneous destruction of viability (of peasant cultivation) and creation of new petty producers because of lack of employment generation.

• Use of informal labour: Especially women, and in unpaid and “underpaid” forms, which has subsidised “modern” industry and services.

• Use of social categories (gender, caste, religion) to reinforce surplus extraction in accumulation process.

• So increasing inequality was a necessary element of this.• Failure of “human development” is an indicator of this

continued reliance on inequality for accumulation.

Share of Rural Decile Groups in Increased Rural Consumption between 1993-94 and 2009-10

RURAL INDIATop 10% appropriated more than 36% of total increase in

consumption.Bottom 10% received 3%.

Bottom 40% managed to get slightly more than 15%.

URBAN INDIATop 10% Appropriated 45% of total increase in consumption.Bottom 10% got less than 1%.

Bottom 40% got 8%.

The inequalities in consumption have been expressed not just in spatial differences but also in terms of significantly increased vertical inequalities.

Share of Urban Decile Groups in Increased Rural Consumption between 1993-94 and 2009-10

Note: Price adjusted to CPI, agricultural labourers for rural and industrial workers for urban.Source: Calculated from different rounds of NSSO data.

Average Per Capita Expenditures (Total And Food) Over Time

Expenditure on Food has increased at lower rates than total Expenditure, leading to a fall in the proportion of the former to the latter.

Rural Sector has higher proportion of food expenditure out of total expenditure, and has witnessed lower reduction as well.

Inequalities in Calorie Intake

Source: Compiled from NSSO Reports, Various Rounds

Can developing countries “decouple”?

Can China emerge as an alternative growth pole for developing Asia ?

Trade balance ($ mn)

Challenges and opportunities for economic policy

• Process outlined here can continue for some more time if region remains favoured destination for mobile global capital – but recent “bad press” has already affected it.

• Internally, limits to this growth process are increasingly being felt: in finance (bubble will burst eventually), in internal imbalance (agrarian crisis and rising food prices), external imbalance (BOP problems), in ecology, in employment and livelihood and associated social tensions.

• New rights-based demands (employment guarantee in India, food and education demands) generate need of system to respond, in however limited a form.

• Change in macroeconomic approach becoming increasingly necessary.

So what is the good news?• Crisis offers a significant opportunity to shift away from

current economic growth strategy, which in any case has run its course and can no longer deliver.

• Different macroeconomic orientation: generation of decent work as a means to sustainable growth, as well as an end in itself, relaying on strong multiplier effects on of public spending on social services and positive supply effects of public infrastructure investment to create virtuous cycles of employment and productivity growth.

• This allows for more stable economic growth that is based on expanding the domestic market, but it does not need to conflict with increasing exports.

• Greater curbs on finance and revival of basic function of finance in developing economies.

Shift in macroeconomic orientationNeed growth strategy that allows and encourages labour

productivity increases overall while significantly expanding expenditure – and therefore income and employment opportunities – in social sectors.

Focus of macroeconomic policies must be on the generation of decent work and on improving conditions of life, not on income growth per se.

Provision of basic needs (employment as well as access to food, sanitation, housing, health and education) and improving the quality of life of all citizens as the central guiding principles.

Quantitative GDP growth targets can distract from these goals and even be counterproductive.(E.g., a chaotic, congested and polluting system of privatised urban transport generates more GDP than a safe, efficient, affordable and “green” system of public transport.)

Such an approach can generate strong positive multiplier effects to create virtuous cycles of employment and productivity growth.